On October 1, 2011, Eagle Company Forecasts the Purchase of Inventory

question 41

Multiple Choice

On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, 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, 2011, the option has a fair value of $1,600. The following spot exchange rates apply: What journal entry should Eagle prepare on October 1, 2011?

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

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Definitions:

Endocrine System

A network of glands in the body that produce and secrete hormones directly into the bloodstream to regulate vital processes, including growth, metabolism, and reproduction.

Pituitary Gland

A small, pea-sized gland located at the base of the brain, crucial for controlling growth, metabolism, and the activity of other glands.

Adrenal Gland

An organ located above the kidneys that produces hormones such as adrenaline and cortisol, which regulate stress response.

Thyroid Gland

An endocrine gland in the neck that produces hormones primarily responsible for regulating metabolism and energy use in the body.