On December 1,2008,Winston Corporation Acquired 100 Shares of Linked Corporation

question 7

Multiple Choice

On December 1,2008,Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share.Winston classifies them as available-for-sale securities.On this same date,it decides to hedge against a possible decline in the value of the securities by purchasing,at a cost of $250,an at-the-money put option to sell the 100 shares at $40 per share.The option expires on February 20,2009.Selected information concerning the fair values of the investment and the options follow:
Assume that Winston exercises the put option and sells Linked shares on February 20,2009.

-Based on the preceding information,the journal entry made on December 31,2008 to record decrease in the time value of the options will include:

• A)a debit to Loss on Hedge Activity for $150.
• B)a credit to Put Option for $300.
• C)a debit to Loss on Hedge Activity for $300.
• D)a credit to Put Option for $100.

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