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Rits inventory at lower-of-fifo-cost-or-net realizable value

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Reference no: EM131288077

On October 15, 2017, Oil Products Co. purchased 4000 barrels of fuel oil with a cost of $240,000. Oil Products is holding this inventory in anticipation of the winter 2018 heatin gseason. Oil Products accounts fo rits inventory at the lower-of-FIFO-cost-or-net realizable value. To hedge against potential declines in the value of the inventory, Oil Products also purhcased a put option on the fuel oil. Oil Products paid an option premium of $300f for th eput option, which gfives Oil Products the option to sell 4000 barrels of fuel oil at a strike price of $60 per gallon. The option expires on March 1, 2018f. The following data are available with respect ot the values of the fuel of inventory and the put option.

Date Market Price of Fuel Oil Time Value of Put Option

Oct. 31 2017

$58 per gallon $175

Nov. 30 2017 $57 per gallon $105

Dec. 31 2017 $54 per gallon $40

a. Prepare the journal entries of Oil products for the following dates

1. october 15,2017- Oil Producs purchases fuel oil and the put option on fuel oil.

2. october 31,2017- Oil Products prepares financial statments

3. november 30, 2017- Oil Products prepares financial statments

4. december 31, 2017- Oil Products prepares financial statments

b. indicate the amount(s) reported on teh balance sheet and income statement related to the fuel oil inventory and the put option on November 30, 2017.

c. indicate the amount(s) freported on the balance sheet and income statement related to the fuel oil and the put option on December 31, 2017.

Reference no: EM131288077

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