On May 1,20x1,Usstar Purchased a Put Option to Sell £50,000

question 12

Multiple Choice

On May 1,20x1,Usstar purchased a put option to sell £50,000 on April 30,20x2 at a strike price equal to $2,which was the spot rate on May 1,20x1. Usstar paid a premium of $0.01 per pound. How should the option be recorded on May 1,20x1?

• A)Debit FOREIGN CURRENCY OPTION for $100,500.
• B)Credit FOREIGN CURRENCY OPTION for $100,500.
• C)Debit FOREIGN CURRENCY OPTION for $500.
• D)Debit HEDGE EXPENSE for $500.

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Definitions:

Lockouts

Actions taken by employers to prevent employees from working as a strategy in labor disputes, typically during negotiations for better terms or conditions.

Picketing

The act of standing or marching outside a place of work or another location as a form of protest, often by workers during a strike.

Preferred Shares

Shares giving the shareholder preference over other classes of shares; that preference often pertains to the payment of dividends.

Legal Obligation

A legal obligation is a requirement imposed by law, where a person is required to perform or refrain from performing a certain action.