A company with a June 30 year-end invests in bonds, paying $1,000,000 face value on February 1, 2020. On April 1, 2020, the bonds are selling for 98. To guard against a decline in the value of the bonds, the company purchases put options on the bonds with a strike price of 100, expiring in 6 months. The puts cost $2.15 per $100 in bonds. When the company's books are closed on June 30, 2020, the bonds are selling for 95 and the puts are selling for $5.08. All income effects of the securities and the options are reported in financial gains (losses).
Required
Prepare the journal entries to record the above events on February 1, April 1 and adjusting entries at June 30, 2020, assuming the investment in bonds is classified as:
a. Available-for-sale
b. Trading
c. Held-to-maturity

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The Answer of A company with a June 30 year-end invests in bonds, paying $1,000,000 face value on February 1, 2020. On April 1, 2020, the bonds are selling for 98. To guard against a decline in the value of the bonds, the company purchases put options on the bonds with a strike price of 100, expiring in 6 months. The puts cost $2.15 per $100 in bonds. When the company's books are closed on June 30, 2020, the bonds are selling for 95 and the puts are selling for $5.08. All income effects of the securities and the options are reported in financial gains (losses).
Required
Prepare the journal entries to record the above events on February 1, April 1 and adjusting entries at June 30, 2020, assuming the investment in bonds is classified as:
a. Available-for-sale
b. Trading
c. Held-to-maturity

A Company with a June 30 Year-End Invests in Bonds