A Maker of Salsa Has Contracted to Buy 100,000 Bushels

question 47

Multiple Choice

A maker of salsa has contracted to buy 100,000 bushels of tomatoes for $4.50 a bushel at the end of August.On the delivery date, the spot price of tomatoes is $4.70 per bushel.Which of the following is true?

• A)The seller of the contract has $20,000 profit.
• B)The buyer of the contract has a $20,000 loss.
• C)The buyer of the contract has a $20,000 profit.
• D)Both A and B are true.

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Definitions:

Allowance Method

An accounting technique that estimates and sets aside a portion of accounts receivable deemed likely uncollectible.

Uncollectible Receivables

Accounts receivable that the company does not expect to collect, often recognized as bad debt expense.

Settlement

The process of finalizing a transaction where the buyer pays the seller, and the seller transfers ownership of an asset, or the resolution of a dispute.

Maturity Value

The amount that will be paid to the holder of a financial instrument at the instrument's maturity date, including principal and any accrued interest.