Accounting For Embedded Derivatives - FAR - CPA Exam: "Globo Gym has a supply contract to buy new weights for its workout room. The supply contract contains a clause where the price of the weights varies according to the price of iron. If Globo Gym decides to cancel the contract without taking delivery of the weights, Globo Gym owes the supplier for the difference between the price agreed to in the contract and the market price of iron at the date of contract cancelation. No down payment was required to enter into the supply contract. Does this clause represent an embedded derivative that must be accounted for separately from the supply contract? A. Yes because the price paid by Globo Gym fluctuates based on the market price of iron B. Yes because the fair value option was not elected for this contract C. No because the clause is clearly and closely related to the supply contract D. No because this is a supply contract, not a derivative"
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