On October 1, 2018, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2019, at a price of 100,000 British pounds. On October 1, 2018, 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, 2018, the option has a fair value of $1,600. The following spot exchange rates apply:DateSpot RateOctober 1, 2018$2.00 December 31, 2018 1.97 February 1, 2019 2.01 ?What journal entry should Eagle prepare on October 1, 2018??EventGeneral JournalDebitCreditA)Cash 1,800 Foreign Currency Option 1,800 B)Forward
Contract 1,800 Cash 1,800 C)Foreign Currency Option 1,800 Gain on Foreign Currency 1,800 D)Loss on Foreign Currency 1,800 Cash 1,800 E)Foreign Currency Option 1,800 Cash 1,800
A. Option C.
B. Option B.
C. Option E.
D. Option A.
E. Option D.
Answer: C
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