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Brk signs a firm sales commitment with Riv. The contract is to sell 100,000 widgets deliverable in three months, on January 31, 2012, at the prevailing market price of widgets at that date. On...

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Brk signs a firm sales commitment with Riv. The contract is to sell 100,000 widgets deliverable in three months, on January 31, 2012, at the prevailing market price of widgets at that date. On November 1, 2011, the current sales price of widgets is $5 each. Brk is concerned that the sales price could decrease by the time the delivery is to occur.
On November 1, 2011, Brk contracts with Lyn to buy 100,000 widgets deliverable on January 31, 2012, for $5 each. The forward contract is to be settled net. Assume that 6 percent is a reasonable annual discount rate.
Prepare the journal entries to record the firm sales commitment and forward contract on the following dates:
1. November 1, 2011, assuming a sales price of S5.00 per widget
2. December 31, 2011, assuming a sales price of $4.50 per widget
3. January 31, 2012, assuming a sales price of $6 per widget

Answered Same DayDec 31, 2021

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Robert answered on Dec 31 2021
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