Big Arber Company ordered parts from a foreign supplier on November 20 at a price of 50,000 pijios when the spot rate was $0.20 per pijio. Delivery and payment were scheduled for December 20. On November 20, Big Arber acquired a call option on 50,000 pijios at a strike price of $0.20, paying a premium of $0.008 per pijio. It designates the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. The parts arrive and Big Arber makes payment according to schedule. Big Arber does not close its books until December 31.
a. Assuming a spot rate of $0.21 per pijio on December 20, prepare all journal entries to account for the option and firm commitment.
b. Assuming a spot rate of $0.18 per pijio on December 20, prepare all journal entries to account for the option and firm commitment.
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