On June 1, Vandervelde Corporation (a U.S.-based manufacturing firm) received an order to sell goods to a foreign customer at a price of 130,000 leks. Vandervelde will ship the goods and receive payment in three months on September 1. On June 1, Vandervelde purchased an option to sell 130,000 leks in three months at a strike price of $1.04. It properly designated the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. Relevant exchange rates and option premiums for the lek are as follows:

Date:	Spot Rate:	Put Option Presium for 9/1 (Strike Price $1.94)
June 1	1.04	0.024
June 30	0.95	0.028
September 1	0.95	N/A

Vanderveldes incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Vandervelde Corporation must close its books and prepare its second-quarter financial statements on June 30.

Prepare journal entries for the foreign currency option and firm commitment.

Entry 1. Record the foreign currency option.

Entry 2. Record entry for receipt of an order to sell merchandise to foreign customer.

Entry 3. Record gain or loss on the firm commitment.

Entry 4. Record gain or loss on the foreign currency option.

Entry 5. Record gain or loss on the firm commitment.

Entry 6. Record gain or loss on the foreign currency option.

Entry 7. Record the sale.

Entry 8. Record the receipt of leks.

Entry 9. Record entry to close the firm commitment.