On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
Based on the preceding information, the journal entry made on December 31, 20X8 to record decrease in the time value of the options will include:
A) a debit to Loss on Hedge Activity for $150.
B) a credit to Put Option for $300.
C) a debit to Loss on Hedge Activity for $300.
D) a credit to Put Option for $100.

Question

On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected information concerning the fair values of the investment and the options follow:  Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
Based on the preceding information, the journal entry made on December 31, 20X8 to record decrease in the time value of the options will include:
A) a debit to Loss on Hedge Activity for $150. 
B) a credit to Put Option for $300. 
C) a debit to Loss on Hedge Activity for $300. 
D) a credit to Put Option for $100.

Quizplus · Accepted Answer

The Answer of On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected information concerning the fair values of the investment and the options follow:  Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
Based on the preceding information, the journal entry made on December 31, 20X8 to record decrease in the time value of the options will include:
A) a debit to Loss on Hedge Activity for $150. 
B) a credit to Put Option for $300. 
C) a debit to Loss on Hedge Activity for $300. 
D) a credit to Put Option for $100.

On December 1, 20X8, Winston Corporation Acquired 100 Shares of Linked