. Mountainview Company produces colorful 100% cotton shirts and the entity needs 50,000 kilos of raw materials in the production process. On December 1, 2021, the entity purchased a call option as a cash flow hedgeto buy 50,000 kilos on July 1, 2022. The option strike price is ₱100 per kilo. The entity paid ₱50,000 for the call option.This derivative option contract means that if the market price is higher than ₱100, the entity can exercise the option and buy the asset at the strike option price of ₱100. If the market price is lower than 100, the entity can throw away the option and buy the asset at the cheaper price.The market price per kilo is ₱110 on December 31, 2021 and ₱115 on July 1, 2022. 1. What is the derivative asset on Decem
B. Mountainview Company produces colorful 100% cotton shirts and the entity
needs 50,000 kilos of raw materials in the production process.
On December 1, 2021, the entity purchased a call option as a
to buy 50,000 kilos on July 1, 2022.
The option strike price is ₱100 per kilo. The entity paid ₱50,000 for the call option.
This derivative option contract means that if the market price is higher than ₱100,
the entity can exercise the option and buy the asset at the strike option price of
₱100.
If the market price is lower than 100, the entity can throw away the option and
buy the asset at the cheaper price.
The market price per kilo is ₱110 on December 31, 2021 and ₱115 on July 1,
2022.
1. What is the derivative asset on December 31, 2021?
a. 500,000
b. 450,000
c. 750,000
d. 700,000
2. What is the cash settlement for the speculator on July 1, 2022?
a. 750,000
b. 700,000
c. 500,000
d. 450,000
3. What is the cost of purchase on July 1, 2022?
a. 5,750,000
b. 5,000,000
c. 5,050,000
d. 5,300,000
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