CHAPTER 12: DERIVATIVES: Forward, Futures, and Option

Problem 12-1: Tagaytay Company

Required: Prepare journal entries for 2021 and 2022

Computation

Market Price - December 31, 2021 (5,000 x P 1,800) P 9,000,000

Underlying Price (5,000 x P 1,500) 7,500,000
Forward Contract receivable - December 31, 2021 1,500,000

Market Price – March 1, 2022 (5,000 x P 1,700) 8,500,000

Underlying price 7,500,000
Forward contract receivable – March 1, 2022 1,000,000
Forward contract receivable – December 31, 2021 1,500,000
Decrease in Forward contract receivable P 500,000

2021
Dec 31 Forward contract receivable 1,500,000
Unrealized gain – forward contract 1,500,000
To record forward contract receivable

2022
March 1 Unrealized gain – forward contract 500,000
Forward contract receivable 500,000
To record decrease in forward contract receivable

1 Cash 1,000,000
Forward contract receivable 1,000,000
To record payment from the bank

1 Purchases (5,000 x 1,700) 8,500,000

Cash 8,500,000
To record purchases

1 Unrealized gain – forward contract 1,000,000

Purchases 1,000,000
To credit unrealized gain to purchases

Problem 12-2:

Required: Prepare journal entries for 2021 and 2022

Computation:

Market Price - December 31, 2021 (100,000 x P 78) P 7,800,000

Underlying Price (100,000 x P 80) 8,000,000
Forward Contract payable - December 31, 2021 200,000

Market Price – January 31, 2022 (100,000 x P 75) 7,500,000

Underlying price 8,000,000
Forward contract payable – January 31, 2022 500,000
Forward contract payable– December 31, 2021 200,000
Increase in Forward contract payable P 300,000
 2021
Dec 31 Unrealized loss – forward contract 200,000
Forward contract payable 2000,000
To record forward contract payable

2022
Jan 31 Unrealized loss – forward contract 300,000
Forward contract payable 300,000
To record increase in forward contract payable

31 Forward contract payable 500,000

Cash 500,000
To record payment to the financial institution

31 Purchases (100,000 x 75) 7,500,000

Cash 7,500,000
To record purchases

31 Purchases 500,000
Loss on forward contract 500,000
To debit loss to purchases

Problem 12-3: Quezon Company

Required: Prepare journal entries for 2021 and 2022 assuming:

1. The market price of soya beans is P160 on December 31, 2021 and P165 on February 1, 2022

Computation

Market Price - December 31, 2021 (50,000 x P 160) P 8,000,000

Underlying Price (50,000 x P 150) 7,500,000
Futures Contract receivable - December 31, 2021 500,000

Market Price – February 1, 2022 (50,000 x P 165) 8,250,000

Underlying price 7,500,000
Futures contract receivable – February 1, 2022 750,000
Futures contract receivable – December 31, 2021 500,000
Increase in Futures contract receivable P 250,000

2021
Dec 31 Futures contract receivable 500,000
Unrealized gain – futures contract 500,000
To record futures contract receivable

2022
Feb 1 Futures contract receivable 250,000
Unrealized gain – futures contract 250,000
To record increase in futures contract receivable

1 Cash 750,000
Futures contract receivable 750,000
To record payment from the bank
 1 Purchases (50,000 x 165) 8,250,000
Cash 8,250,000
To record purchases

1 Unrealized gain – futures contract 750,000

Purchases 750,000
To credit unrealized gain to purchases

2. The market price of soya beans on December 31, 2021 and on February 1, 2022 is P145

Market Price - December 31, 2021 (50,000 x P 145) P 7,250,000

Underlying Price (50,000 x P 150) 7,500,000
Futures Contract payable - December 31, 2021 250,000

Market Price – February 1, 2022 (50,000 x P 145) 7,250,000

Underlying price 7,500,000
Futures contract payable – February 1, 2022 250,000
Futures contract payable – December 31, 2021 250,000
Increase in Futures contract receivable 0

2021
Dec 31 Unrealized loss – futures contract 250,000
Futures contract payable 250,000
To record futures contract payable

2022
Feb 1 Futures contract receivable 250,000
Cash 250,000
To record payment to the bank

1 Purchases (50,000 x 145) 7,250,000

Cash 7,250,000
To record purchases

1 Purchases 250,000
Loss on futures contract 250,000
To debit loss to purchases

Problem 12-4: Bicolandia Company

Required: Prepare journal entries for 2021 and 2022 to record the futures contract and the purchase
of the grape juice concentrate

Computation

Market Price - December 31, 2021 (100,000 x P 65) P 6,500,000

Underlying Price (100,000 x P 50) 5,000,000
Futures Contract receivable - December 31, 2021 1,500,000

Market Price – March 1, 2022 (100,000 x P 60) 6,000,000

Underlying price 5,000,000
Futures contract receivable – March 1, 2022 1,000,000
Futures contract receivable – December 31, 2021 1,500,000
Decrease in Futures contract receivable P 500,000
 2021
Dec 31 Futures contract receivable 1,500,000
Unrealized gain – futures contract 500,000
To record futures contract receivable

2022
March 1 Unrealized gain – futures contract 500,000
Futures contract receivable 500,000
To record decrease in futures contract receivable

1 Cash 1,000,000
Futures contract receivable 1,000,000
To record payment from the bank

1 Purchases (100,000 x 60) 6,000,000

Cash 6,000,000
To record purchases

1 Unrealized gain – futures contract 1,000,000

Purchases 1,000,000
To credit unrealized gain to purchases

Problem 12-5: Taal Company

Required: Prepare journal entries for 2021 and 2022

Market Price - December 31, 2021 (25,000 x P 45) P 1,125,000

Underlying Price (25,000 x P 50) 1,250,000
Futures Contract payable - December 31, 2021 125,000

Market Price – March 1, 2022 (25,000 x P 42) 1,050,000

Underlying price 1,250,000
Futures contract payable – March 1, 2022 200,000
Futures contract payable – December 31, 2021 125,000
Increase in Futures contract payable P 75,000

2021
Dec 31 Unrealized loss – futures contract 125,000
Futures contract payable 125,000
To record futures contract receivable

2022
March 1 Unrealized loss – futures contract 75,000
Futures contract payable 75,000
To record increase in futures contract payable

1 Futures contract payable 200,000

Cash 200,000
To record payment to the bank

1 Purchases (25,000 x 42) 1,050,000

Cash 1,050,000
To record purchases
 1 Purchases 200,000
Loss on futures contract 200,000
To debit loss to purchases

Problem 12-6: Legaspi Company

Required: Prepare journal entries for 2021 and 2022 assuming:

1. The market price of cotton on December 31, 2021 is P32 and the market price on July 1, 2022
is P 35 per kilo

2021
Dec 1 Call Option 50,000
Cash 50,000
To record purchase of call option

31 Call option (100,000 x 2 – 50,000) 150,000

Unrealized gain 150,000
To record increase in fair value of call option

2022
July 1 Call option (100,000 x 5 – 200,000) 300,000
Unrealized gain 300,000
To record increase in fair value of call option

1 Cash 500,000
Call option 500,000
To record payment from call option

1 Purchases (100,000 x 35) 3,500,000

Cash 3,500,000
To record purchases

1 Unrealized gain – call option 450,000

Purchases 450,000
To credit unrealized gain to purchases

2. The market price of cotton on December 31, 2021 is P32 and the market price on July 1, 2022
is P 28 per kilo

2021
Dec 1 Call Option 50,000
Cash 50,000
To record purchase of call option

31 Call option (100,000 x 2 – 50,000) 150,000

Unrealized gain 150,000
To record increase in fair value of call option

2022
July 1 Purchases (100,000 x 28) 2,800,000
Cash 2,800,000
To record purchases
 1 Loss on call option 50,000
Unrealized gain – call option 150,000
Call option 200,000
To record loss on call option

Problem 12-7 Naga Company

Required: Prepare journal entries for 2021 and 2022 to record the call option and the purchase of the
raw material

2021
Dec 1 Call Option 20,000
Cash 20,000
To record purchase of call option

31 Call option (200,000 x 2 – 20,000) 380,000

Unrealized gain 150,000
To record increase in fair value of call option

2022
June 1 Call option (200,000 x 3 – 400,000) 200,000
Unrealized gain 200,000
To record increase in fair value of call option

1 Cash (200,000 x 3) 600,000

Call option 600,000
To record payment from call option

1 Purchases (200,000 x 25) 5,000,000

Cash 5,000,000
To record purchases

1 Unrealized gain – call option 580,000

Purchases 580,000
To credit unrealized gain to purchases

Problem 12-8 Sorsogon Company

Required: Prepare journal entries for 2021 and 2022 to record the put option (on the part of the seller)
and the sale of the finished product.

2021
Dec 1 Put Option 100,000
Cash 100,000
To record purchase of put option

2022
June 1 Cash (50,000 x 175) 8,750,000
Sales 8,750,000
To record sales

1 Loss on put options 100,000

Unrealized gain-put option (500,000 x 5 – 100,000) 150,000
Put option 250,000
To record loss on put options