1. Problem 2: The next five MCQs need to be answered based on Problem 2.

   On March 1, 2019, a US company agrees to sell inventory for 100,000 Euros on April 15, 2016. The inventory will be delivered and the Euros will be received on April 15, 2019 itself.

   On March 1, 2019, the US company also purchases an option to sell 100,000 Euros on April 15 at a direct exchange rate of $1.25. The cost of the option is $15,000. The spot rates on the following dates were:

   March 1, 2019 $1.22

   April 15, 2019 $1.14

   Assume that the company received 100,000 Euros on April 15 and exercised the option to sell the Euros on April 15.

   (Based on Problem 2) In the journal entry recorded to exercise the option on April 15, cash account will be

   		Debited with $122,000
   		Debited with $125,000
   		Credited with $114,000
   		Credited with $122,000

3.5 points

QUESTION 18

1. (Based on Problem 2) In the journal entry recorded to exercise the option on April 15, the Investment in FC account will be

   		Credited with $114,000
   		Debited with $125,000
   		Debited with $122,000
   		Credited with $122,000

3.5 points

QUESTION 19

1. (Based on Problem 2) In the journal entry recorded to exercise the option on April 15,

   		A loss of $11,000 will be recorded
   		A gain of $6,000 will be recorded
   		A gain of $11,000 will be recorded
   		A loss of $4,000 will be recorded

3.5 points

QUESTION 20

1. (Based on Problem 2) If the US company had not purchased the option, they would have sold the foreign currency in the market for

   		$122,000
   		$114,000
   		$125,000
   		This question cannot be answered from the information given in the question.

3.5 points

QUESTION 21

1. (Based on Problem 2) Based on all the information in the question, what is the maximum amount you would want to pay to buy this option so that you don't suffer a loss?

   		$11,000
   		$15,000
   		$12,000
   		$13,000