Looking for help with Requriement B Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials. (If no entryis required for a transaction/event, select "No journal entry required" in the first account field.)NoDateGeneral JournalDebitCredit112/15/2020Foreign currency option6,000Cash6,000212/15/2020No journal entry required312/31/2020Foreign currency option7,000Other comprehensive income7,000412/31/2020Cost of goods sold1,000Other comprehensive income1,00003/15/2021Foreign currency option27,000Other comprehensive income27,00003/15/2021Cost of goods sold5,000Other comprehensive income5,000703/15/2021Foreign currency (francs)1,620,000Cash1,580,000Foreign currency option40,00003/15/2021Raw materials inventory1,620,000Foreign currency (francs)1,620,0009.03/15/2021Accumulated other comprehensive income40,000Cost of goods sold40,0001003/15/2021Cost of goods sold1,620,000Raw materials inventory1,620,000 Problem 9-41 (Algo) (LO 9-9)Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a costof 2,000,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a calloption to purchase 2,000,000 francs in three months. Maas selects a strike price of $0.79 per franc when the spot rate is $0.79 andpays a premium of $0.003 per franc. The spot rate increases to $0.794 at December 31, 2020, causing the fair value of the option toincrease to $13,000. By March 15, 2021, when the raw materials are purchased, the spot rate has climbed to $0.81, resulting in a fairvalue for the option of $40,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021,when Maas prepares its annual financial statements.a. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials.b. What is the overall impact on net income over the two accounting periods?c. Whatthe net cash outfloto acquire the raw materials?X Answer is not complete.Complete this question by entering your answers in the tabs below.Req AReq B and Cb. What is the overall impact on net income over the two accounting periods? (Negative amounts should be entered with aminus sign.)c. What is the net cash outflow to acquire the raw materials?Impact on NetIncomeb.Impact on net income in 2020Impact on net income in 2021C.Net cash outflow$1,586,000< Req AReq B and C >

Solution:- Preparation of all journal entries for the option hedge of a forecasted transaction and…

Complete this question by entering your answers in the tabs below. Req A Req B and C b. What is the overall impact on net income over the two accounting periods? (Negative amounts should be entered with a minus sign.) c. What is the net cash outflow to acquire the raw materials? Impact on Net Income b. Impact on net income in 2020 Impact on net income in 2021

Complete this question by entering your answers in the tabs below. Req A Req B and C b. What is the overall impact on net income over the two accounting periods? (Negative amounts should be entered with a minus sign.) c. What is the net cash outflow to acquire the raw materials? Impact on Net Income b. Impact on net income in 2020 Impact on net income in 2021

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 41QA

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Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 2,000,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 2,000,000 francs in three months. Maas selects a strike price of $0.79 per franc when the spot rate is $0.79 and pays a premium of $0.003 per franc. The spot rate increases to $0.794 at December 31, 2020, causing the fair value of the option to increase to $13,000. By March 15, 2021, when the raw materials are purchased, the spot rate has climbed to $0.81, resulting in a fair value for the option of $40,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials.
Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,200,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,200,000 francs in three months. Maas selects a strike price of $0.68 per franc when the spot rate is $0.68 and pays a premium of $0.005 per franc. The spot rate increases to $0.686 at December 31, 2020, causing the fair value of the option to increase to $10,000. By March 15, 2021, when the raw materials are purchased, the spot rate has climbed to $0.70, resulting in a fair value for the option of $24,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials. What is the overall impact on net income over…
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