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A Company Pays $5,000 to Purchase Futures Contracts to Buy

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Essay

A company pays $5,000 to purchase futures contracts to buy 50 oz of silver at $40/oz. At the company's year-end, the price of silver rose and the value of the company's futures contracts increased to $6,000.
Required:
Record the journal entries related to these futures.


Definitions:

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product and included in the product's cost calculation.

Break-Even Point

The level of production or sales volume at which total revenues equal total costs, resulting in zero profit or loss.

Contribution Margin Ratio

The ratio of contribution margin to sales revenue, indicating the percentage of each sales dollar available to cover fixed costs and generate profit.

Contribution Margin Ratio

A financial metric that measures how much of a company's revenue is available to cover its variable costs and contribute to its fixed costs.

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