Philip Purchases Ten Lawnmowers Through a Sale or Return Contract

question 12

Multiple Choice

Philip purchases ten lawnmowers through a sale or return contract.He plans to resell the lawnmowers in his garden supply store.The contract specifies that Philip must return the lawnmowers within six months if he decides that he does not want them.After seven months,Philip has sold five mowers,but decides that he does not want to keep trying to sell the rest of them.Philip

• A)can return the five remaining lawnmowers and not have to pay for them.
• B)cannot return the five remaining lawnmowers because the sale was considered finalized after six months.
• C)can return the five remaining lawnmowers as long as he does so before a year has passed.
• D)can return the five lawnmowers as long as he pays all costs related to shipping them.

---

Definitions:

Fair Value Hedge

A hedge of the exposure to changes in fair value of a recognized asset or liability, or an unrecognized firm commitment, that is attributable to a particular risk.

Forward Contract

A financial contract obligating the buyer to purchase, and the seller to sell a specific asset at a predetermined future date and price.

Spot Rates

The current market price at which a particular security can be bought or sold for immediate delivery.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.