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Fair Value Hedge: Put Options On June 15, 2022, Smithson Foods purchased $1,000,000 of 2.5 percent corporate bonds at par, and designated them as available-for-sale
Fair Value Hedge: Put Options On June 15, 2022, Smithson Foods purchased $1,000,000 of 2.5 percent corporate bonds at par, and designated them as available-for-sale investments. On December 31, 2022, Smithson's year-end, the bonds are selling at 98.5. On February 1, 2023, the bonds are selling at 98. To hedge against a further price decrease on the bonds, Smithson purchased for $33,000 put options on the bonds, expiring January 30, 2024, at a strike price of 101. The intrinsic value of the puts was designated as the hedge instrument, and the time value is amortized to income on a straight-line basis. On December 31, 2023, the bonds were selling at 97 and the puts were selling for $42,000. On January 30, 2024, the bonds were selling at 96 and Smithson sold the puts for $50,000. Required Prepare Smithson Foods' journal entries during 2022, 2023, and 2024 related to the puts and the bonds. Gains and losses related to the bonds that are appropriately reported in income appear in "nonoperating gains (losses)." how is the intrinsic value of the options calculated for 2/1/2023
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