On May 1, 20×1, Usstar purchased a put option to sell £50,000 on April 30, 20×2 at a strike price equal to $2, which was the spot rate on May 1, 20×1. Usstar paid a premium of $0.01 per pound. How should the option be recorded on May 1, 20×1?
A. Debit FOREIGN CURRENCY OPTION for $100,500.
B. Credit FOREIGN CURRENCY OPTION for $100,500.
C. Debit FOREIGN CURRENCY OPTION for $500.
D. Debit HEDGE EXPENSE for $500.
Answer:C
On May 1, 20×1, Usstar purchased a put option to sell £50,000 on April 30, 20×2 at a strike price equal to $2, which was the spot rate on May 1, 20×1. Usstar paid a premium of $0.01 per pound. How should the option be recorded on May 1, 20×1?
A. Debit FOREIGN CURRENCY OPTION for $100,500. B. Credit FOREIGN CURRENCY OPTION for $100,500. C. Debit FOREIGN CURRENCY OPTION for $500. D. Debit HEDGE EXPENSE for $500.