A U.S. company estimated that, in the first two months of 2026, its export sales to a

Question:

A U.S. company estimated that, in the first two months of 2026, its export sales to a Swiss company would generate 400,000 francs. On December 1, 2025, in an effort to protect against the weakening franc, the company purchased an option (out of the money) to sell 400,000 Swiss francs at an exchange rate of $0.60 with an expiration date of February 25, 2026. The cost of the option was $6,000. The spot rates on the following dates were:

The option’s value in the options market on December 31, 2025, was $9,000. December 31 is also an interim reporting date. The option was exercised on February 25, 2025.

Required:
Prepare all journal entries needed on December 1, December 31, and February 25 to account for the option.

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