ABC Co. does printing jobs for various customers. On January 1, 20x1, ABC Co. forecasted the purchase of 1,000 reams of paper in the next quarter. The expected purchase date is on April 15, 20x1. ABC Co. expects that the price of paper will fluctuate because of the upcoming elections. Thus, on January 1, 20x1, ABC Co. enters into a forward contract to purchase 1,000 reams of paper at a forward rate of ₱600 per ream. If the market price on April 15, 20x1 is more than ₱600, ABC Co. shall receive the difference from the broker. On the other hand, if the market price is less than ₱600, ABC Co. shall pay the difference to the broker. The forward contract will be settled net on April 15, 20x1. The discount rate is 10%. If the price of paper is ₱700 per ream on March 31, 20x1, how much is the derivative asset (liability) to be recognized in ABC Co.’s first quarter financial statements? a. 100,000 asset b. 100,000 liability c. 98,772 asset d. 98,772 liability
ABC Co. does printing jobs for various customers. On January 1, 20x1, ABC Co.
ABC Co. expects that the price of paper will fluctuate because of the upcoming elections. Thus, on January 1, 20x1, ABC Co. enters into a forward contract to purchase 1,000 reams of paper at a forward
rate of ₱600 per ream. If the market price on April 15, 20x1 is more than ₱600, ABC Co. shall receive the difference from the broker. On the other hand, if the market price is less than ₱600, ABC Co. shall pay the difference to the broker. The forward contract will be settled net on April 15, 20x1. The discount rate
is 10%. If the price of paper is ₱700 per ream on March 31, 20x1, how much is the derivative asset (liability) to be recognized in ABC Co.’s first quarter financial statements?
a. 100,000 asset
b. 100,000 liability
c. 98,772 asset
d. 98,772 liability
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