On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply: What journal entry should Eagle prepare on October 1, 2021?

A)Option A.
B)Option B.
C)Option C.
D)Option D.
E)Option E.

Question

On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply:

What journal entry should Eagle prepare on October 1, 2021?

A)Option A. 
B)Option B. 
C)Option C. 
D)Option D. 
E)Option E.

Quizplus · Accepted Answer

The Answer of On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply:  What journal entry should Eagle prepare on October 1, 2021?

A)Option A. 
B)Option B. 
C)Option C. 
D)Option D. 
E)Option E.

On October 1, 2021, Eagle Company Forecasts the Purchase of Inventory