Jensen company forecasts a requirement for 200000 pounds of

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Jensen Company forecasts a requirement for 200,000 pounds of cotton in May. On 11th April, the company acquires a call option to purchase 200,000 pounds of cotton in May at a strike price of $0.3765 per pound for a premium of $814. Spot prices and options values at elected dates follow:

                                       April 11           April 30            May 3

Spot price per pound          $0.3718         $0.3801           $0.3842

Fair value of option              814                   1,137            1,689

Jensen Company settled the option on May 3 and buys 200,000 pounds of cotton on 17th May at a spot price of $0.3840 per pound. In the last half of May and the starting of June the cotton was used to produce cloth. One third of the cloth was sold in June. The modification in the option's time value is excluded from the assessment of hedge effectiveness.

Required:

a. Prepare all journal entries required through June to record the above transactions and events.

Reference no: EM13352052

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