Question

Dauphinee DL Corp. plans to purchase 121,000 shares of Santos Technology Ltd., a publicly traded company. Dauphinee has signed a contract to acquire the shares from Holding Co. in 90 days, after certain approvals are obtained; these approvals are routine but time consuming. The agreed-upon price per share is $23.00, which is the fair value of the shares on the day the contract was signed. Santos shares have traded between $8 and $34 over the last year; the industry has been volatile. Sixty days after signing this agreement, it is Dauphinee’s year-end, and Santos shares are trading for $30.00. At the time the contract matured, and the shares are purchased; the shares are trading for $16.00. Required: 1. Not available in Connect 2. Not available in Connect 3. Prepare journal entries to record the inception of the contract, the change in its fair value at year-end, and its maturity. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1. On Date of Signing of Contract

No Entries as it's Just Signing of Contract and Purchase will done at Maturity

2. 60 Days ( Forward Cover Measured at Fair Value)

Forward Premium Gain a/c Dr 847000

to Gain 847000

3. on Maturity

Loss A/c Dr 847000

Gain A/c Dr 847000

Share A/c 1936000

to Bank 2783000

to Forward Premium 847000