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PROBLEMF American Company sold inventory (cost, $78,000) on November 1, 2008 to a foreign customer for 140,000 FC. Payment is due on February 1, 2009.
PROBLEMF American Company sold inventory (cost, $78,000) on November 1, 2008 to a foreign customer for 140,000 FC. Payment is due on February 1, 2009. On November 1, American purchased an out-of-the-money put option to sell 140,000 FC on February 1, 2009 at a strike price of 1 FC = $0.92. An option premium of $1,000 was paid. The table below summarizes spot rates and the fair value of the option on different dates: 11/1/08 12/31/08 2/1/09 Spot rate 1 FC $0.925 $0.895 $0.89 Fair value of options $1,000 $3,300 $4,200 Required: Make all the necessary journal entries for American Company relative to these events occurring between November 1, 2008, and January 31, 2009, inclusive
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