Based on past experience, Maas Corp (a U S based company) expects to purchase raw materials from a foreign supplier at a cost of 1,500,000 francs on March 15, 2021 To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,500,000 francs in three months Maas selects a strike price of $0 63 per franc when the spot rate is $0 63 and pays a premium of $0 005 per franc The spot rate increases to $0 634 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 65, resulting in a fair value for the option of $30,000 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 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 for a transaction event, select No journal entry required in the first account field ) View transaction list Journal entry worksheet 12 3 4 5 6 7 8 9 10 Record purchase of foreign currency option as an asset Note Enter debits before credits General Journal Debit Credit Date 12 15 2020 Record entry Clear entry View general journal Prey 5 of 5 E Next

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Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,500,000 francs on

Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,500,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,500,000 francs in three months. Maas selects a strike price of $0.63 per franc when the spot rate is $0.63 and pays a premium of $0.005 per franc. The spot rate increases to $0.634 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 $0.65, resulting in a fair value for the option of $30,000. 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?

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. image text in transcribed

for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 12 3 4 5 6 7 8 9 10 > Record purchase of foreign currency option as an asset. Note: Enter debits before credits. General Journal Debit Credit Date 12/15/2020 Record entry Clear entry View general journal Prey 5 of 5 E Next