Accounting for Fair Value Hedge: Put Option PierTwo purchased at par, 100, $100, 5% bonds of Supplier Inc. on January 1, 2020. In order to avoid exposure to fluctuations in the fair value of Supplier Inc. bonds, PierTwo acquires a 12-month put option on January 1, 2020, to sell 100 bonds of Supplier Inc. at a price of $100 per bond. The hedge is considered to be highly effective. On December 31, 2020, the market price per share of Supplier Inc. bonds fell to $90 per bond while the value of the put option is estimated to be $980. For simplicity, ignore interest on the bonds and assume the purchase price of the put option is zero. Required a. Prepare the entry to adjust the investment to fair value on December 31, 2020. Note: If a journal entry (or a line of the journal entry) isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

Account Name Options:

Date

Account

Debit

Credit

Dec. 31, 2020

Answer

Answer

Answer

Answer

Answer

Answer

To adjust value of the investment

b. Prepare the entry to adjust the put option to fair value on December 31, 2020. Note: If a journal entry (or a line of the journal entry) isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

Date	Account	Debit	Credit
Dec. 31, 2020	Answer	Answer	Answer
	Answer	Answer	Answer
	To adjust value of the put option

c. Calculate the net effect on the income statement of holding the put option and the debt securities in 2020. Note: Do not use a negative sign with your answer. Net effect on net income: $Answer

Please answer all parts of the question.

Cash Inventory Call Option Futures Contract Put Option Swap Fair Value Adjustment Note Payable Cost of Goods Sold Interest Expense Unrealized Gain or Loss OCI Loss on Settlement of Call Option Unrealized Gain or Loss Income N/A