GEN COMBO ADVANCED ACCOUNTING; CONNECT ACCESS CARD
13th Edition
ISBN: 9781260087383
Author: Joe Ben Hoyle
Publisher: McGraw-Hill Education
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Chapter 9, Problem 40P
a.
To determine
Prepare
b.
To determine
Prepare journal entries for foreign currency option, firm commitment and purchase of inventory when spot rate $0.48 per forint on December 20.
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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 165,000 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 165,000 francs in three months at a strike price of $1.04. 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 $1.04)
June 1
1.04
0.020
June 30
0.98
0.072
September 1
0.93
N/A
Parker-Mae Corporation must close its books…
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 100,000
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 100,000 francs in three months at a strike price of $1.00. 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
June 1
June 30
September 1
Spot Rate
$1.00
0.94
0.90
Put Option Premium
for September 1
(strike price $1.00)
$ 0.020
0.072
N/A
Parker-Mae Corporation must close its books and prepare its second-quarter financial statements on June…
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 receive
payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,110,000 pesos in three months at a strike
price of $0.076. 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
June 1
June 30
September 1
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. 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…
Chapter 9 Solutions
GEN COMBO ADVANCED ACCOUNTING; CONNECT ACCESS CARD
Ch. 9 - Prob. 1QCh. 9 - Prob. 2QCh. 9 - What factors create a foreign exchange gain on a...Ch. 9 - In what way is the accounting for a foreign...Ch. 9 - Prob. 5QCh. 9 - How does a foreign currency option differ from a...Ch. 9 - Prob. 7QCh. 9 - Why would a company prefer a foreign currency...Ch. 9 - How do companies report foreign currency...Ch. 9 - How does a company determine the fair value of a...
Ch. 9 - What is hedge accounting?Ch. 9 - Prob. 12QCh. 9 - What are the differences in accounting for a...Ch. 9 - What are the differences in accounting for a...Ch. 9 - What are the differences in accounting for a...Ch. 9 - Prob. 16QCh. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Grace Co. had a Chinese yuan payable resulting...Ch. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - Prob. 10PCh. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - On March 1, Pimlico Corporation (a U.S.-based...Ch. 9 - Torres Corporation (a U.S.-based company) expects...Ch. 9 - Prob. 15PCh. 9 - What was the net impact on Jensen Companys 2018...Ch. 9 - What was the net increase or decrease in cash flow...Ch. 9 - What is the net impact on Micros net income for...Ch. 9 - What is the net impact on Micros net income for...Ch. 9 - What is Micros net increase or decrease in cash...Ch. 9 - What is the net impact on Dos Santos Companys 2017...Ch. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Prob. 26PCh. 9 - Prob. 27PCh. 9 - Prob. 28PCh. 9 - Prob. 29PCh. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - Use the same facts as in Problem 31 except that...Ch. 9 - On June 1, Alexander Corporation sold goods to a...Ch. 9 - On June 1, Cairns Corporation purchased goods...Ch. 9 - Prob. 35PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Prob. 38PCh. 9 - Prob. 39PCh. 9 - Prob. 40PCh. 9 - Based on past experience, Leickner Company expects...Ch. 9 - Prob. 42PCh. 9 - RESEARCH CASEINTERNATIONAL FLAVORS AND FRAGRANCES...Ch. 9 - Prob. 2DYSCh. 9 - Prob. 3DYSCh. 9 - ANALYSIS CASECASH FLOW HEDGE On February 1, 2017,...Ch. 9 - Prob. 5DYSCh. 9 - COMMUNICATION CASEFORWARD CONTRACTS AND OPTIONS...
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