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Question
Acme Refinery buys a call on oil for $10,000. At the end of the accounting period, the price of oil has fallen and the value of the call has decreased to $6,000. Acme uses derivative accounting to account for the call.
(a) What accounting entry does Acme make for the purchase of the call for $6,000?
(b) What accounting entry does Acme make at the end of the accounting period when the value of the call has decreased to $6,000?
(c) Discuss a common exception to derivative accounting used in the upstream oil and gas business.
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