A U.S. company estimated that, in the first two months of 2016, its export sales to a
Question:
A U.S. company estimated that, in the first two months of 2016, its export sales to a Swiss company would generate 400,000 francs. On December 1, 2020, in an effort to protect against the weakening franc, the company purchased an option (out of the money) to sell 400,000 Swiss francs at an exchange rate of $0.60 with an expiration date of February 25, 2016. The cost of the option was $6,000. The spot rates on the following dates were:
December 1, 2020 ............................. $0.62
December 31, 2020 .......................... $0.60
February 25, 2021 ............................ $0.57
The option’s value in the options market on December 31, 2020, was $9,000. December 31 is also an interim reporting date. The option was exercised on February 25, 2020.
Required:
Prepare all journal entries needed on December 1, December 31, and February 25 to account for the option.
Exchange RateThe value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
December 1 2020 Option to sell Francs 6000 Cash 6000 December 31 2020 Option to sell Francs 3000 Exc...View the full answer
