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

question 53

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 $2,000 was paid.
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$$\begin{array} { l c c c c } & \text { July 1 } & \text { July 31 } & \text { August 31 } & \text { October 1 } \\\text { Spot } & \$ 0.58 & \$ 0.61 & \$ 0.63 & \$ 0.635 \\\text { Fair Value of Option } & \$ 2,000 & \$ 2,500 & \$ 5,100 & \$ 5,500\end{array}$$ Required:
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Prepare the journal entries required through 10/1.

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Definitions:

Autonomic Arousal

The activation of the autonomic nervous system, which can induce physiological responses such as increased heart rate or sweating.

Actions

The process or state of acting or being active, often referring to physical movements or behaviors by an individual or group.

James-Lange Theory

A hypothesis proposing that emotional experiences arise from physiological reactions to events, emphasizing the body's response before the identification of the emotion by the mind.

Common Sense

Common sense refers to sound practical judgment concerning everyday matters, or a basic ability to perceive, understand, and judge in a manner that is shared by (common to) nearly all people.