On June 15, 2020, Smithson Foods purchased $4,000,000 of 2.5 percent corporate bonds at par, and designated them as available-for-sale investments. On December 31, 2020, Smithsons year-end, the bonds are selling at 98.5. On February 1, 2021, the bonds are selling at 98. To hedge against a further price decrease on the bonds, Smithson purchased for $3.50 per $100 of bonds, February 2022 put options on the bonds at a strike price of 101. The intrinsic value of the puts was designated as the hedge instrument. On December 31, 2021, when the bonds were selling at 97, Smithson closed out its position by selling the puts for $4.70. Early in 2022, Smithson sold the bonds at 97.

Required

Prepare Smithson Foods journal entries during 2020, 2021, and 2022 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).

General Journal
Date	Description	Debit	Credit
06/15/20	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	To record purchase of AFS bonds.
12/31/20	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	To record change in value of the unhedged bonds
02/01/21	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	To record change in value of the unhedged bonds
	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	To record purchase of put options
12/31/21	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	To adjust the carrying value of the bond investment.
	Investment in optionsCashGain on hedgingOCILoss on hedgingInvestment in bonds
	Investment in optionsNonoperating gainCashGain on hedgingOCILoss on hedgingInvestment in bonds
	To record the gain or loss on options
	Investment in optionsCashNonoperating gain on hedgingOCINonoperating lossInvestment in bonds
	Investment in optionsCashNonoperating gainOCINonoperating lossInvestment in bonds
	To record the sale of put options
2022	Cash
	Investment in optionsCashNonoperating gainNonoperating lossInvestment in bonds
	Investment in optionsCashNonoperating gainNonoperating lossInvestment in bonds
	OCI
	To record sale of bonds and release of OCI to income for the unhedged loss on the bonds.