Answered: What amount should be recognized by…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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14. Naga Company produces bottled grape juice. Grape juice concentrate is typically bought and sold by the pound. Naga uses 50,000 pounds of grape juice concentrate each month. On November 1, 2011, Naga entered into a grape juice concentrate futures contract as a cash flow hedge to buy 50,000 pounds of concentrate on February 1, 2012 at a price of P50 per pound. The market price on December 31, 2011 and February 1, 2012 of the grape juice concentrate is P38 per pound. The appropriate discount rate is 11%. The periodic system is used. What amount should be recognized by Naga Company on December 31, 2011 as derivative asset or liability?

a. 540,540 asset

b. 540,540 liability

c. 600,000 liability

d. 600,000 asset

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