On December 1,20X8,Winston Corporation acquired 10 deep discount bonds from Linked Corporation at a cost of $400 per bond.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 10 bonds at $400 per bond.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 bonds on February 20,20X9.
-Based on the preceding information,the journal entry made on December 31,20X8 to record the 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 10 deep discount bonds from Linked Corporation at a cost of $400 per bond.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 10 bonds at $400 per bond.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 bonds on February 20,20X9.
-Based on the preceding information,the journal entry made on December 31,20X8 to record the 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 10 deep discount bonds from Linked Corporation at a cost of $400 per bond.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 10 bonds at $400 per bond.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 bonds on February 20,20X9.
-Based on the preceding information,the journal entry made on December 31,20X8 to record the 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 10 Deep Discount Bonds from Linked