Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 11, Problem 11.17E
a.
To determine
Introduction: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e. direct exchange rate and indirect exchange rate.Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
The effect of speculation as on December 31, 20X1 on income before tax.
b.
To determine
Introduction: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e. direct exchange rate and indirect exchange rate.Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
The effect of speculation as on March 1, 20X2 on income before tax.
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At the close of business on December 31, 2021 Tempest Corp pays a $80,000 premium to purchase a foreign currency option giving Tempest the right but not the obligation to purchase 100,000 euros and sell $130,000 US dollars in six months as a hedge of a future euro rental obligation.
What is reported on the balance sheet at December 31, 2021 (in US dollars)
asset of $0
asset of $80,000
asset of $210,000
liability of $110,000
liability of $130,000
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, 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.…
Chapter 11 Solutions
Advanced Financial Accounting
Ch. 11 - Prob. 11.1QCh. 11 - Prob. 11.2QCh. 11 - The U.S. dollar strengthened against the European...Ch. 11 - Prob. 11.4QCh. 11 - Prob. 11.5QCh. 11 - How are assets and liabilities denominated in a...Ch. 11 - Prob. 11.7QCh. 11 - Prob. 11.8QCh. 11 - Prob. 11.9QCh. 11 - Distinguish between an exposed net asset position...
Ch. 11 - Prob. 11.11QCh. 11 - Prob. 11.12QCh. 11 - Effects of Changing Exchange Rates Analysis Since...Ch. 11 - Prob. 11.2CCh. 11 - Prob. 11.5CCh. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Basic Understanding of Foreign Exposure The...Ch. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Adjusting Entries for Foreign Currency Balances...Ch. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11.1ECh. 11 - Prob. 11.11.2ECh. 11 - Prob. 11.11.3ECh. 11 - Prob. 11.11.4ECh. 11 - Prob. 11.11.5ECh. 11 - Prob. 11.11.6ECh. 11 - Prob. 11.11.7ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14.1ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.3ECh. 11 - Prob. 11.14.4ECh. 11 - Prob. 11.14.5ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.7ECh. 11 - Prob. 11.15ECh. 11 - Prob. 11.16AECh. 11 - Prob. 11.17ECh. 11 - Prob. 11.18ECh. 11 - Prob. 11.19.1ECh. 11 - Prob. 11.19.2ECh. 11 - Prob. 11.19.3ECh. 11 - Prob. 11.19.4ECh. 11 - Prob. 11.19.5ECh. 11 - Prob. 11.20.1PCh. 11 - Prob. 11.20.2PCh. 11 - Prob. 11.20.3PCh. 11 - Prob. 11.20.4PCh. 11 - Prob. 11.20.5PCh. 11 - Foreign Sales Tex Hardware sells many of its...Ch. 11 - Prob. 11.22PCh. 11 - Prob. 11.23.1PCh. 11 - Prob. 11.23.2PCh. 11 - Prob. 11.24PCh. 11 - Prob. 11.25PCh. 11 - Prob. 11.26PCh. 11 - Prob. 11.27.1PCh. 11 - Prob. 11.27.2PCh. 11 - Prob. 11.27.3PCh. 11 - Prob. 11.28APCh. 11 - Prob. 11.29.1BPCh. 11 - Prob. 11.29.2BPCh. 11 - Prob. 11.29.3BPCh. 11 - Prob. 11.29.4BPCh. 11 - Prob. 11.29.5BPCh. 11 - Prob. 11.29.6BPCh. 11 - Prob. 11.30BPCh. 11 - Prob. 11.31BPCh. 11 - Matching Key Terms Match the items in the lefthand...
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