Based on past experience, Maas Corp. $($a U$.$S$.-$based company$)$ expects to purchase raw materials from a foreign supplier at a cost of $2,000,000$ francs on March $15,2021.$ To hedge this forecasted transaction, on December $15,2020,$ the company acquires a call option to purchase $2,000,000$ francs in three months. Maas selects a strike price of $$0\mathrm{.}79$ per franc when the spot rate is $$0\mathrm{.}79$ and pays a premium of $$0\mathrm{.}003$ per franc. The spot rate increases to $$0\mathrm{.}794$ at December $31,2020,$ causing the fair value of the option to increase to $$13,000.$ By March $15,2021,$ when the raw materials are purchased, the spot rate has climbed to $$0\mathrm{.}81,$ resulting in a fair value for the option of $$40,000.$ The raw materials are used in assembling finished products, which are sold by December $31,2021,$ when Maas prepares its annual financial statements.

Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials.

What is the overall impact on net income over the two accounting periods?

What is the net cash outflow to acquire the raw materials?

Complete this question by entering your answers in the tabs below.

Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials.

$1.$Record purchase of foreign currency option as an asset.

$2.$Record entry for order placed with foreign supplier.

$3.$Record the entry to recognize the increase in the value of the foreign currency option.

$4.$Record entry to recognize the decrease in the time value of the option as an increase in cost of goods sold.

$5.$Record the entry to recognize the increase in the value of the foreign currency option.

$6.$Record entry to recognize the decrease in the time value of the option as an increase in cost of goods sold.

$7.$Record the exercise of foreign currency option.

$8.$Record the purchase of inventory.

$9.$Record entry to transfer the amount accumulated in AOCI

$10.$Record entry to transfer the cost of the raw materials to cost of goods sold.

b$.$ What is the overall impact on net income over the two accounting periods? $($Negative amounts should be entered with a minus sign.$)$

c$.$ What is the net cash outflow to acquire the raw materials?