On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, the option has a fair value of $1,600. The following spot exchange rates apply:

Date	Spot Rate
October 1, 2013	$2.00
December 31, 2013	$1.97
February 1, 2014	$2.01

(a.) What journal entry should Eagle prepare on October 1, 2018?

Answer rating: 100% (QA)

Journal entry October 1 2... View the full answer