Complete this question by entering your answers in the tabs below.Req B1Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, preparejournal entries for the export sale and related hedge in U.S. dollars. (Do not round intermediate calculations. If no entry isrequired for a transaction/event, select "No journal entry required" in the first account field.)No12345678910Req A11112Date06/0106/0106/3006/3006/3006/3009/0109/0109/0109/0109/01Req A209/01Accounts receivable (P)SalesForeign currency optionCashForeign exchange gain or lossAccounts receivable (P)Req 82Foreign exchange gain or lossForeign currency optionNo journal entry requiredNo journal entry requiredForeign exchange gain or lossAccounts receivable (P)General JournalForeign exchange gain or lossForeign currency optionNo journal entry requiredNo journal entry requiredForeign currency (P)Accounts receivable (P)CashForeign currency (P)Foreign currency option< Req A2Req B2 >33>>>33333>33333DebitCredit On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,110,000 pesos and will receivepayment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,110,000 pesos in three months at a strikeprice of $0.076. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value isrecognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows:DateJune 1June 30September 1Maxwell must close its books and prepare its second-quarter financial statements on June 30.a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, preparejournal entries for the export sale and related hedge in U.S. dollars.a-2. What is the impact on net income over the two accounting periods?b-1. Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, preparejournal entries for the export sale and related hedge in U.S. dollars.b-2. What is the impact on net income over the two accounting periods?Complete this question by entering your answers in the tabs below.No12345Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, preparejournal entries for the export sale and related hedge in U.S. dollars. (Do not round intermediate calculations. If no entry isrequired for a transaction/event, select "No journal entry required" in the first account field.)678910Red A11112Date06/0106/0106/3006/3006/3006/3009/0109/01Spot Rate$ 0.0760.0750.07409/0109/0109/01Put Option Premiumfor September 1(strike price $0.076)$ 0.00390.0029N/AReq A209/01Req B1Accounts receivable (P)SalesForeign currency optionCash> Answer is not complete.Req B2Foreign exchange gain or lossAccounts receivable (P)Other comprehensive incomeForeign currency optionGeneral JournalOther comprehensive incomeForeign exchange gain or lossForeign exchange gain or lossOther comprehensive incomeForeign exchange gain or lossAccounts receivable (P)Other comprehensive incomeForeign currency optionForeign currency (P)Accounts receivable (P)Other comprehensive incomeForeign exchange gain or lossCashForeign currency (P)Foreign currency optionForeign exchange gain or lossOther comprehensive income<Req A1Req A2 >✔✔✔✔✔♥✔✔00 00 00✔✔✔✔✔✔✔✔✔✔DebitCredit

A cash flow hedge refers to the form of a hedge that is curated in order to safeguard the company's…

Answered: Req B1 ignates the foreign currency…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter9: Operating Activities

Section: Chapter Questions

Problem 22PC

See similar textbooks

Similar questions

On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,100,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,100,000 pesos in three months at a strike price of $0.074. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date Spot Rate Put Option Premium for September 1 (strike price $0.074) June 1 $ 0.074 $ 0.0037 June 30 0.073 0.0028 September 1 0.072 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. Required: a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the…
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,140,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,140,000 pesos in three months at a strike price of $0.080. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date Spot Rate Put Option Premiumfor September 1(strike price $0.080) June 1 $ 0.080 $ 0.0043 June 30 0.079 0.0031 September 1 0.078 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2.…
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,080,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,080,000 pesos in three months at a strike price of $0.106. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date Spot Rate Put Option Premiumfor September 1(strike price $0.106) June 1 $ 0.106 $ 0.0069 June 30 0.105 0.0044 September 1 0.104 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars.…
On June 1, Parker-Mae Corporation (a U.S.-based company) received an order to sell goods to a foreign customer at a price of 130,000 francs. Parker-Mae will ship the goods and receive payment in three months, on September 1. On June 1, Parker-Mae purchased an option to sell 130,000 francs in three months at a strike price of $0.96. The company designated the option as a fair value hedge of a foreign currency firm commitment. The option's time value is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income. The fair value of the firm commitment is measured by referring to changes in the spot rate (discounting to present value is ignored). Relevant exchange rates and option premiums for the franc are as follows: Date Spot Rate Put Option Premiumfor September 1(strike price $0.96) June 1 $ 0.96 $ 0.020 June 30 0.90 0.072 September 1 0.85 N/A Parker-Mae Corporation must close its books and prepare its…
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: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, Vandervelde Corporation (a U.S.-based manufacturing firm) received an order to sell goods to a foreign customer at a price of 100,000 leks. Vandervelde will ship the goods and receive payment in three months on September 1. On June 1, Vandervelde purchased an option to sell 100,000 leks in three months at a strike price of $1.00. It properly designated 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. Relevant exchange rates and option premiums for the lek are as follows: Date Spot Rate Put option premium for September 1 (strike price $1.00) June 1 $1.00 $0.020 June 30 0.94 0.028 September1 0.88 N/A Vandervelde’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Vandervelde Corporation must close its books and prepare its second-quarter financial…
On June 1, Vandervelde Corporation (a U.S.-based manufacturing firm) received an order to sell goods to a foreign customer at a price of 100,000 leks. Vandervelde will ship the goods and receive payment in three months on September 1. On June 1, Vandervelde purchased an option to sell 100,000 leks in three months at a strike price of $1.00. It properly designated 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. Relevant exchange rates and option premiums for the lek are as follows:Vandervelde’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Vandervelde Corporation must close its books and prepare its second-quarter financial statements on June 30.a. Prepare journal entries for the foreign currency option and firm commitment.b. What is the impact on net income over…
In September 1, 20X1, True North Ltd. a Canadian company, entered into an agreement with Langdon Ltd, a foreign company, to purchase inventory for 100,000 FC. The inventory is to be delivered on February 15, X2. According to the agreement, True North will make payment on March 15, 20X2. On September 2, 20X1, True North’s bank arranged for a 100,000 FC hedge against True North’s commitment to Langdon. The spot rate on September 2 was 1 FC = $3.60 CDN, and the March 15, 20X2 rate was 1FC = $3.66 CDN. At True North’s December 31, 20X1 year end, the spot rate was 1FC= $3.63 CDN and the forward rate for march 15, 20X2 was 1FC=$3.65 CDN. With Langdon delivered the merchandise to True North on February 15, 20X2, the spot rate was 1 FC = $3.66 CDN and the forward rate was 1FC=$3.675 CDN. True North paid Langdon on March 15, as required. On that date, the spot rate was 1FC= $ 3.69 CDN. The hedge arranged by True North is a cash hedge, Prepare the journal entries to record the acquisition…
On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.45 per Norwegian krone, Derby enters into a forward contract to purchase 527,500 Norwegian kroner at a three-month forward rate of $0.490. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.482 per Norwegian krone, Derby orders and receives the merchandise, paying 527,500 kroner. The merchandise is sold within 30 days. What amount(s) does Derby report in net income as a result of this cash flow hedge of a forecasted transaction and the related purchase and sale of merchandise? Cost of goods sold of $254,255 plus foreign exchange loss of $4,220 Cost of goods sold of $258,475 Cost of goods sold of $237,375 plus foreign exchange loss of $21,100 Cost of goods…
On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.33 per Norwegian krone, Derby enters into a forward contract to purchase 635,000 Norwegian kroner at a three-month forward rate of $0.360. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.351 per Norwegian krone, Derby orders and receives the merchandise, paying 635,000 kroner. The merchandise is sold within 30 days. What amount(s) does Derby report in net income as a result of this cash flow hedge of a forecasted transaction and the related purchase and sale of merchandise? Multiple Choice Cost of goods sold of $222,885 plus foreign exchange loss of $5,715 Cost of goods sold of $228,600 less foreign exchange gain of $19,050 Cost of goods sold of $209,550…
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…
On January 10, Volkswagen agrees to import auto parts worth $7 million from the U.S. The parts will be delivered on March 4 and are payable immediately in dollars. VW decides to hedge its dollar position by entering into IMM futures contracts. The spot rate is $1.3447/€ and the March futures price is $1.3502. On March 4, the spot rate turns out to be $1.3452/€, while the March futures price is $1.3468/€. Calculate VW’s net euro gain or loss on its futures position. $13,850 loss $13,850 gain $17,850 loss $17,850 gain

SEE MORE QUESTIONS

Recommended textbooks for you

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

SEE MORE TEXTBOOKS

Req B1 ignates the foreign currency option as a fair value rt sale and related hedge in U.S. dollars. (Do not vent, select "No journal entry required" in the firs counts receivable (P) es eign currency option Req B2 General Journal