Overhill Farms Inc. has a large portfolio of marketable equity securities held as short-term investments. To protect against declines in the value of 10,000 shares of Tyson Foods Inc. common stock that Overhill holds, on November 1, 2016, Overhill Farms purchased 90-day put options for \($35,000\) on the 10,000 Tyson Foods shares it had purchased at \($40.\) The exercise price is \($40\) and the shares are selling for \($38\) each. Overhill Farms designates the intrinsic value of the puts as the hedge instrument. Overhill Farms classifies the Tyson Foods shares as available-for-sale securities. 

Required

a. Prepare journal entries to record purchase of the puts and relevant events on November 1, 2016, and when the books are closed at December 31, 2016, the stock is selling for \($35.50,\) and the options are selling for \($50,000.\)

b. Thirty days after the closing in part a, Overhill Farms decides to sell the 10,000 Tyson Foods shares for \($32\) each and to sell the put options for their intrinsic value of \($80,000.\) Prepare the journal entries

c. to record the sale, and calculate the net cash gain or loss realized on these sale transactions. How much of this net cash gain or loss is recognized in 2016 income? In 2017 income?