On June 1, Alexander Corporation sold goods to a foreign customer at a price of 1,000,000 pesos and will receive payment in three months on September 1. On June 1, Alexander acquired an option to sell 1,000,000 pesos in three months at a strike price of $0.062. Relevant exchange rates and option premiums for the peso are as follows: Date Spot Rate Put option premium for September 1 (strike price $0.062) June 1 $0.062 $0.0025 June 30 0.066 0.0018 September 1 0.061 N/A Alexander must close its books and prepare its second-quarter financial statements on June 30.a. Assuming that Alexander designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. What is the impact on net income over the two accounting periods?b. Assuming that Alexander designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. What is the impact on net income over the two accounting periods?
On June 1, Alexander Corporation sold goods to a foreign customer at a price of 1,000,000 pesos and will receive payment in three months on September 1. On June 1, Alexander acquired an option to sell 1,000,000 pesos in three months at a strike price of $0.062. Relevant exchange rates and option premiums for the peso are as follows:
| Date | Spot Rate | Put option premium for September 1 (strike price $0.062) |
| June 1 | $0.062 | $0.0025 |
| June 30 | 0.066 | 0.0018 |
| September 1 | 0.061 | N/A |
Alexander must close its books and prepare its second-quarter financial statements on June 30.
a. Assuming that Alexander designates the foreign currency option as a
b. Assuming that Alexander designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. What is the impact on net income over the two accounting periods?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 15 images
