Prepare the journal entries if the foreign currency option was classified as a fair value hedge.

(Estimated Time: 90 to 120 minutes) Felix Toy Company (Felix) is a U.S.-based company that sells toys through its online store in the United States. Felix regularly purchases inventory from a supplier located in Xiamen, China, and makes payment in Chinese yuan. The following spot exchange rates, for- ward exchange rates, and call option premia for Chinese yuan exist during the period August to October. U.S. Dollar (USD) per Chinese Yuan (CNY) Call Option Premium Forward Rate for October 31 Date Spot Rate (strike price $0.143) to October 31 August 1 September 30 October 31 $0.143 $0.148 $0.0081 0.149 0.151 0.0123 0.154 0.154 (spot) N/A