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

question 47

Multiple Choice

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 December 31, 2021?

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

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Definitions:

Supply

Supply is the total quantity of a good or service that is available for sale at a given price over a specified time period.

Price

The expense value envisioned, mandated, or spent in return for something.

Good Bought

Refers to any product or service that has been purchased by consumers.

Wage

The fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.