Question

Blossom Corporation, a manufacturer of ethnic foods, contracted in 2020 to purchase 470 pounds of a spice mixture at $2.35 per pound, delivery to be made in spring of 2021. By 12/31/20, the price per pound of the spice mixture had risen to $2.73 per pound. In 2020, Blossom should recognize:______.
A. No gain or loss.
B. A gain of $178.60.
C. A loss of $1104.50.
D. A loss of $178.60.

Answer 1

Answer:

No gain or loss.

Explanation:

Given:

Amount of spice mixture = 470 pound

Current price = $2.35 per pound

Future price = $2.73 per pound

Computation:

We know that, Future price of spice mixture is higher than current price of spices.

But contract price is fixed at $2.35.

Therefore, no gain or loss will be recognized.

Answer 2

Answer:

A. No gain or loss.

Explanation:

Relevant data provided as per the question is shown below:-

Spice mixture = $2.73 price per pound

Initial contract price = $2.35

Here the spice mixture is $2.73 price per pound as on 31 December 2020 is higher than the initial contract price $2.35, so no gain or loss should be recognized.

Therefore option A is correct.