On 7/1, a Company Forecasts the Purchase of 10,000 Units

Essay

On 7/1, a company forecasts the purchase of 10,000 units of inventory from a foreign vendor.The forecasted cost is estimated to be 150,000 FC.It is estimated inventory will be delivered 11/1.Also, on 7/1, the company purchased a call option to buy 150,000 FC at a strike price of $0.60 anytime during October.An option premium of $2,000 was paid.
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$$\begin{array} { l c c c c } & \text { July 1 } & \text { July 31 } & \text { August 31 } & \text { October 1 } \\\text { Spot } & \$ 0.58 & \$ 0.61 & \$ 0.63 & \$ 0.635 \\\text { Fair Value of Option } & \$ 2,000 & \$ 2,500 & \$ 5,100 & \$ 5,500\end{array}$$ Required:
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Prepare the journal entries required through 10/1.