MSH Corporation uses gold to manufacture jewelry. MSH anticipates the need for gold on June 30th for goods that will be sold on September 30th. Concerned that the price of gold will increase, MSH purchases a futures contract and designates the contract as a cash flow hedge. As it turns out, the spot price of gold was lower at the end of June when the contract was settled. When should MSH recognize the loss on the futures contract in the income statement and should the loss be included in income from continuing operations (IFCO)? Date loss is recognized Loss included in IFCO A) September 30th No B) June 30th Yes C) September 30th Yes D) June 30th No
Sept and no.
it’s C - i think hedge is going to effect COGS
Damn Maratikus… your always on top of this stuff… I think your in good shape for June 7th… Your answer: B was incorrect. The correct answer was C) September 30th Yes On June 30th, the loss on the futures contract should be reported in other comprehensive income. When the goods are sold on September 30th, the loss should be recognized in the income statement along with the cost of goods sold which is lower since the price of gold declined. The loss is neither extraordinary nor related to a discontinued operation. Thus, the loss is reported “above the line” as a part of income from continued operations.
Dammit.
Had he not been a Jewelery manufacturer we still report the loss “above the line”?? Thanks Anish
Maratikus is going places lol