Bluewave Foods Holds $1,000,000 Par Value of Gallo Company Bonds

Essay

Bluewave Foods holds $1,000,000 par value of Gallo Company bonds, classified as available-for-sale. The bonds were purchased at par on October 2, 2020. They are currently reported at cost and have a market value of 99.2 on December 1, 2020. To protect against further declines in value, on December 1, 2020, Bluewave purchased for $4,500 3-month put options at an exercise price of 99.6. The puts qualify as a fair value hedge of the bond investment. Bluewave designates the intrinsic value of the puts as the hedge instrument and reports all income effects of the investment and its hedge in nonoperating gains (losses). On December 31, 2020, Bluewave's year-end, the bonds are selling for 99.1, and the options are selling for $5,200. On March 1, 2021 Bluewave sells the bonds for their current value of 98.9 and sells the put options for their intrinsic value of $7,000.
Required
Prepare the journal entries to record the events above, including December 31, 2020 year-end adjustments.