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