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

image text in transcribed

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.

1. Record the sale of goods. 2. Record the purchase of the foreign currency option. 3. Record the entry to adjust the value of the foreign currency accounts receivable. 4. Record the change in the fair value of the option. 5. Record the foreign exchange gain or loss on the foreign currency option. 6. Record the change in the time value of the foreign currency option. 7. Record the entry to adjust the value of the foreign currency accounts receivable. 8. Record the change in the fair value of the option. 9. Record the foreign exchange gain or loss on the foreign currency option. 10. Record the change in the time value of the foreign currency option.

11. Record receipt of the foreign currency. 12. Record the exercise of the option.

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 hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars.

b-2. What is the impact on net income over the two accounting periods?

image text in transcribed

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 Spot Rate $ 0.076 0.075 0.074 Put Option Premium for September 1 (strike price $0.076) $ 0.0039 0.0029 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. 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 hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. b-2. What is the impact on net income over the two accounting periods? Reg A1 Reg A2 Reg B1 Reg B2 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. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) General Journal Debit Credit No 1 Date 06/01 84,360 Accounts receivable (P) Sales 84,360 2 06/01 4,329 Foreign currency option Cash 4,329 3 06/30 1,110 Foreign exchange gain or loss Accounts receivable (P) 1,110 4 06/30 1.110 Other comprehensive income Foreign currency option 1,110 5 06/30 1,110 Other comprehensive income Foreign exchange gain or loss 1,110 6 06/30 1,110 Foreign exchange gain or loss Other comprehensive income 1,110 7 09/01 1,110 Foreign exchange gain or loss Accounts receivable (P) 1,110 8 09/01 Other comprehensive income Foreign currency option 9 09/01 Other comprehensive income Foreign exchange gain or loss 10 09/01 Foreign exchange gain or loss Other comprehensive income 11 09/01 Foreign currency (P) Accounts receivable (P) 12 09/01 Cash Foreign cur (P) Foreign currency option Req A1 Req A2 > Reg A1 Reg A2 Reg B1 Reg B2 Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Date General Journal Debit Credit 1 06/01 84,360 Accounts receivable (P) Sales 84,360 2 06/01 >> 4,329 Foreign currency option Cash 4,329 3 06/30 Foreign exchange gain or loss Accounts receivable (P) 4 06/30 Foreign exchange gain or loss Foreign currency option 5 06/30 No journal entry required 6 06/30 No journal entry required 7 09/01 Foreign exchange gain or loss Accounts receivable (P) 8 09/01 Foreign exchange gain or loss Foreign currency option 9 09/01 No journal entry required ON 10 09/01 No journal entry required 11 09/01 Foreign currency (P) Accounts receivable (P) Olo 12 09/01 Cash Foreign currency (P) Foreign currency option 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 Spot Rate $ 0.076 0.075 0.074 Put Option Premium for September 1 (strike price $0.076) $ 0.0039 0.0029 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. 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 hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. b-2. What is the impact on net income over the two accounting periods? Reg A1 Reg A2 Reg B1 Reg B2 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. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) General Journal Debit Credit No 1 Date 06/01 84,360 Accounts receivable (P) Sales 84,360 2 06/01 4,329 Foreign currency option Cash 4,329 3 06/30 1,110 Foreign exchange gain or loss Accounts receivable (P) 1,110 4 06/30 1.110 Other comprehensive income Foreign currency option 1,110 5 06/30 1,110 Other comprehensive income Foreign exchange gain or loss 1,110 6 06/30 1,110 Foreign exchange gain or loss Other comprehensive income 1,110 7 09/01 1,110 Foreign exchange gain or loss Accounts receivable (P) 1,110 8 09/01 Other comprehensive income Foreign currency option 9 09/01 Other comprehensive income Foreign exchange gain or loss 10 09/01 Foreign exchange gain or loss Other comprehensive income 11 09/01 Foreign currency (P) Accounts receivable (P) 12 09/01 Cash Foreign cur (P) Foreign currency option Req A1 Req A2 > Reg A1 Reg A2 Reg B1 Reg B2 Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Date General Journal Debit Credit 1 06/01 84,360 Accounts receivable (P) Sales 84,360 2 06/01 >> 4,329 Foreign currency option Cash 4,329 3 06/30 Foreign exchange gain or loss Accounts receivable (P) 4 06/30 Foreign exchange gain or loss Foreign currency option 5 06/30 No journal entry required 6 06/30 No journal entry required 7 09/01 Foreign exchange gain or loss Accounts receivable (P) 8 09/01 Foreign exchange gain or loss Foreign currency option 9 09/01 No journal entry required ON 10 09/01 No journal entry required 11 09/01 Foreign currency (P) Accounts receivable (P) Olo 12 09/01 Cash Foreign currency (P) Foreign currency option