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

question 63

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 December 31, 2011?

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

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