On October 15, 2025, Oil Products Co. purchased 4,000 barrels of fuel oil with a cost of $240,000 ($60 per barrel). Oil Products is holding this inventory in anticipation of the winter 2026 heating season. Oil Products accounts for its 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 purchased a put optio on the fuel oil. Oil Products paid an option premium of $300 for the put option, which gives Oil Products the option to sell 4,000 barrels of fuel oil at a strike price of $60 per gallon. The option expires on March 1, 2026. The following data are available with respect to the values of the fuel of inventory and the put option. Market Price of Fuel Oil Time Value of Put Option Date October 31, 2025 $58 per gallon $175 November 30, 2025 57 per gallon 105 December 31, 2025 54 per gallon 40 (a) Prepare the journal entries of Oil Products for the following dates. 1. October 15, 2025-Oil Products purchases fuel oil and the put option on fuel oil. 2. October 31, 2025-Oil Products prepares financial statements. 3. 4. December 31, 2025-Oil Products prepares financial statements. November 30, 2025-Oil Products prepares financial statements.
On October 15, 2025, Oil Products Co. purchased 4,000 barrels of fuel oil with a cost of $240,000 ($60 per barrel). Oil Products is holding this inventory in anticipation of the winter 2026 heating season. Oil Products accounts for its 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 purchased a put optio on the fuel oil. Oil Products paid an option premium of $300 for the put option, which gives Oil Products the option to sell 4,000 barrels of fuel oil at a strike price of $60 per gallon. The option expires on March 1, 2026. The following data are available with respect to the values of the fuel of inventory and the put option. Market Price of Fuel Oil Time Value of Put Option Date October 31, 2025 $58 per gallon $175 November 30, 2025 57 per gallon 105 December 31, 2025 54 per gallon 40 (a) Prepare the journal entries of Oil Products for the following dates. 1. October 15, 2025-Oil Products purchases fuel oil and the put option on fuel oil. 2. October 31, 2025-Oil Products prepares financial statements. 3. 4. December 31, 2025-Oil Products prepares financial statements. November 30, 2025-Oil Products prepares financial statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please don't give solution in image format..... please explain proper steps by steps and create tables in answer please.....
Transcribed Image Text:On October 15, 2025, Oil Products Co. purchased 4,000 barrels of fuel oil with a cost of $240,000 ($60 per barrel). Oil Products is
holding this inventory in anticipation of the winter 2026 heating season. Oil Products accounts for its 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 purchased a put optio
on the fuel oil. Oil Products paid an option premium of $300 for the put option, which gives Oil Products the option to
sell 4,000 barrels of fuel oil at a strike price of $60 per gallon. The option expires on March 1, 2026. The following data are available
with respect to the values of the fuel of inventory and the put option.
Market Price of Fuel Oil Time Value of Put Option
Date
October 31, 2025
$58 per gallon
$175
November 30, 2025
57 per gallon
105
December 31, 2025
54 per gallon
40
(a)
Prepare the journal entries of Oil Products for the following dates.
1.
October 15, 2025-Oil Products purchases fuel oil and the put option on fuel oil.
2.
October 31, 2025-Oil Products prepares financial statements.
3.
4.
December 31, 2025-Oil Products prepares financial statements.
November 30, 2025-Oil Products prepares financial statements.
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