Amaretta Company (a U.S.-based company) ordered merchandise from a foreign supplier on November 20 at a price of 1,240,000rupees when the spot rate was $0.050 per rupee. Delivery and payment were scheduled for December 20. On November 20,Amaretta acquired a call option on 1,240,000 rupees at a strike price of $0.050. paying a premium of $0.001 per rupee. The companydesignates the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measuredby referring to changes in the spot rate. The option's time value is excluded from the assessment of hedge effectiveness, and thechange in time value is recognized in net income. The merchandise arrives, and Amaretta makes payment according to schedule.Amaretta sells the merchandise by December 31, when it closes its books.a. Assuming a spot rate of $0.053 per rupee on December 20, prepare all journal entries to account for the foreign currency option,foreign currency firm commitment, and purchase of inventory.b. Assuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currency option,foreign currency firm commitment, and purchase of inventory.Answer is not complete.Complete this question by entering your answers in the tabs below.Reqiured BAssuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currencyoption, foreign currency firm commitment, and purchase of inventory. (If no entry is required for a transaction/event, select"No journal entry required" in the first account field.)General JournalRequired ANo12345678910Date11/2011/2012/2012/2012/2012/2012/2012/3112/3112/31Foreign currency optionCashNo journal entry requiredFirm commitmentForeign exchange gain or lossForeign exchange gain or lossForeign currency optionForeign exchange gain or lossOther comprehensive incomeForeign currency (rupees)CashMerchandise InventoryForeign currency (rupees)Cost of goods soldMerchandise InventoryAccumulated other comprehensive incomeCost of goods soldCost of goods soldFirm commitment< Required A33333333››3333Reqiured B >Debit1,240 ✓2,4801,24059,52059,520 X2,480Credit1,2402,4801,24059,52059,520 X2,480

Journal Entries : It is a record of the business transactions in the primary book of accounts named…

tequired A Reqiured B ssuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currency otion, foreign currency firm commitment, and purchase of inventory. (If no entry is required for a transaction/event, select lo journal entry required" in the first account field.) No General Journal Date 11/20 11/20 12/20 12/20 Foreign currency option Cash No journal entry required Firm commitment Foreign exchange gain or loss Forpion Jone > 33 Debit 1,240 2,480 1.240 Credit 1,240 2,480

tequired A Reqiured B ssuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currency otion, foreign currency firm commitment, and purchase of inventory. (If no entry is required for a transaction/event, select lo journal entry required" in the first account field.) No General Journal Date 11/20 11/20 12/20 12/20 Foreign currency option Cash No journal entry required Firm commitment Foreign exchange gain or loss Forpion Jone > 33 Debit 1,240 2,480 1.240 Credit 1,240 2,480

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 9QA

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