1. On June 1, 2015, Alex Company sells goods to a foreign customer at a price of 1,600,000 euros. It will receive payment in three months on Sep 1, 2015. Relevant exchange rates and option premium for the euros are as follows: Forward Rate Option Premium Date Spot Rate (to Sep. 1, 2015) (strike price $1.10) June 1 1.12 1.12 0.033 June 30 1.08 1.10 0.059 Sep 1 1.03 N/A N/A

Alex Company must close its books and prepare its second-quarter financial statements on June 30. The following A and B are independent situations. A. On June 1, Alex enters into a forward contract to sell 1,600,000 euros on Sep. 1, 2015. Alexs incremental borrowing rate is 12% annually. Alex designates the forward contract as a fair value hedge of a foreign currency receivable. Prepare journal entries for these transactions in U.S. dollars. (24 points)

B. On June 1, Alex acquired an option to sell 1,600,000 euros in three months at a strike price of $1.10. Alex 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. (28 points)