Consolidated Bakeries Needs to Acquire 100,000 Bushels of Wheat Each

question 46

Essay

Consolidated Bakeries needs to acquire 100,000 bushels of wheat each quarter. The spot price is $6.75 per bushel but is expected to increase. Consolidated can purchase call options on 5,000 bushels of wheat with a strike price of $6.80 per bushel and a premium of $0.03 per bushel. Calculate total expected savings from purchasing the options if wheat is forecasted to sell at $6.90 per bushel in 3 months. Conversely, how much did it cost to hedge if the wheat price is unchanged in 3 months?

Identify the types of financial statements and their purposes.

Understand the procedures for recording bond investments and interest.

Differentiate between various methods of accounting for investments.

Know the classification and reporting of investments on the balance sheet.

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Definitions:

Serosa

The outermost layer of tissue that envelops some internal organs, part of the lining of the body cavities and a structure involved in protection and secretion.

Submucosa

A layer of tissue beneath the mucosa, containing blood vessels, nerves, and lymphatics, supporting the mucosa.

Plicae Circularis

Plicae circulares are circular folds of the inner lining of the intestine, which increase the surface area for absorption of nutrients.

Intestinal Villi

Small, finger-like projections that extend into the lumen of the small intestine, greatly increasing its surface area for nutrient absorption.