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Mega Company believes the price of oil will increase in the coming months. Therefore, it decides to purchase call options on oil as a price-risk-hedging
Mega Company believes the price of oil will increase in the coming months. Therefore, it decides to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 20X1, Mega purchases call options for 15,000 barrels of oil at $38 per barrel at a premium of $2 per barrel with a March 1, 20X2, call date. The following is the pricing information for the term of the call: Navember 30, 20x1 December 31,20x1 March 1, 20X2 5 38 8 39 The information for the change in the fair value of the options $300000- S 30000 600045000 December 31, 20x1 March 1, 20x2 45.000 On March 1, 20X2, Mega sells the options at their value on that date and acquires 15,000 barrels of oil at the spot price. On June 1, 20X2, Mega sells the oil for $42 per barrel. Required Prepare the journal entry required on November 30, 20X1, to record the purchase of the call options. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet ecord the purchase of call options. Note: Enter debits before
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