Problem IV: On 7/1/2018, a company forecasts the purchase of inventory from a foreign vendor. The cost is estimated to be 550,000 FCU. The inventory will be delivered on 9/15/2018. Also, on 7/1/2018, the company paid $3,000 to purchase a call option to buy 550,000 FCU at a strike price of $0.378 expiring end of September.

1-Jul 31-Jul 31-Aug 15-Sep

Spot Rate $0.375 $0.364 $0.396 $0.392

FV of Option $3,000 $2,500 $6,500

Instructions: Prepare the journal entries on the dates listed (The company prepared monthly financial statements):

1. Assuming that on 9/15/2018 the option was exercised and inventory delivered and paid.

2. What if the spot rate on 9/15/2018 was $0.373?