Based on past experience, Maas Corp. (a US-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,000,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,000,000 francs in three months. Maas selects a strike price of $0.69 per franc when the spot rate is $0.69 and pays a premium of $0.001 per franc. The spot rate increases to $0.697 at December 31, 2020, causing the fair value of the option to increase to $7,500. By March 15, 2021, when the raw materials are purchased the spot rate has climbed to $0.71, resulting in a fair value for the option of $20,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements, a. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials. b. What is the overall impact on net income over the two accounting periods? c. What is the net cash outflow to acquire the raw materials? Complete this question by entering your answers in the tabs below. Req A Req Band C Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials i no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet 9 10 > 7 8 5 on Record purchase of foreign currency option as an asset. Note: Enter debits before credits Date General Journal Delt Credit 12/15/2020 Record entry Clear entry View general Journal Journal entry worksheet Record entry for order placed with foreign supplier. Note: Enter debits before credits. Date General Journal Debit Credit 12/15/2020 Record entry Clear entry View general Journal Journal entry worksheet Record the entry to recognize the increase in the value of the foreign currency option Note: Enter debits before credits. General Journal Debit Credit Date 12/31/2020 Record entry Clear entry View general Journal Record the exercise of foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 03/15/2021 Record entry Clear entry View general Journal Drow 2 Next Journal entry worksheet Record the purchase of inventory. Note: Enter debits before credits. Date General Journal Debit Credit 03/15/2021 Record entry Clear entry View general Journal nes for the option hedge of a forecasted transaction and for the purchase of ra for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry to transfer the cost of the raw materials to cost of goods sold. Note: Enter debits before credits. Date General Journal Debit Credit 03/15/2021 Record entry Clear entry View general Journal Prey 2 Next > Seved Save & Help 1,000,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,000,000 francs in three months. Maas selects a strike price of $0.69 per franc when the spot rate is $0.69 and pays a premium of $0.001 per franc. The spot rate increases to $0.697 at December 31, 2020, causing the fair value of the option to increase to $7,500. By March 15, 2021, when the raw materials are purchased the spot rate has climbed to $0.71, resulting in a fair value for the option of $20,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements. a. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials. b. What is the overall impact on net income over the two accounting periods? c. What is the net cash outflow to acquire the raw materials? Complete this question by entering your answers in the tabs below. Req A Req B and C 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? Impact on Net Income b. Impact on net income in 2020 Impact on net income in 2021 Net cash outflow
