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Crown Oil, Inc. is a family-owned heating oil distributor that offers customers the opportunity to lock-in a fixed price per gallon in advance of the heating season by signing up for a price protection plan. As a result of offering these plans, Crown Oil assumes the risk of price changes, which it then hedges by acquiring exchange-traded future and option contracts. This case provides an introduction to the economic nature of derivative instruments and hedging and to the related accounting and reporting issues. The appropriate timing of revenue recognition for the upfront fees that Crown Oil receives from customers entering into a price protection contract is also explored in the case, as is the opportunity for earnings management. The case provides the opportunity to research the professional accounting literature, apply existing standards, and communicate recommendations to management.


NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Accounting Education. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Accounting Education, [23, 3-4, (Sept. 2010)] DOI: 10.1016/j.jaccedu.2011.07.001

Publication Title

Journal of Accounting Education

Published Citation

Ebrahim, Ahmed, Sally Schultz, and Joan Hollister. 2010. Instructional Case: When Derivatives Drive Earnings—Crown Oil, Inc. Journal of Accounting Education 28 (3-4) 198-209.