On 7/1, a Company Forecasts the Purchase of 10,000 Units

question 35

Essay

On 7/1, a company forecasts the purchase of 10,000 units of inventory from a foreign vendor. The forecasted cost is estimated to be 150,000 FC. It is estimated inventory will be delivered 11/1. Also, on 7/1, the company purchased a call option to buy 150,000 FC at a strike price of $0.60 anytime during October. An option premium of $1,000.
$\begin{array}{lcccc} & \text { July 1 } & \text { July 31 } & \text { August 31 } & \text { October 1 } \\\text { Spot } & \$ 0.58 & \$ 0.61 & \$ 0.63 & \$ 0.635 \\\text { FV of Option } & \$ 1,000 & \$ 1,400 & \$ 2,400 & \$ 2,600\end{array}$ Required:
Prepare the journal entries required through 10/1.

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