Based on past experience, Maas Corporation $($a U$.$S$.-$based company$)$ expects to purchase raw materials from a foreign supplier at a Based on past experience, Maas Corporation $($a U$.$S$.-$based company$)$ expects to purchase raw materials from a foreign supplier at a

cost of $1,600,000$ francs on March $15,2024.$ To hedge this forecasted transaction, on December $15,2023,$ the company acquires a call

option to purchase $1,600,000$ francs in three months. Maas selects a strike price of $$0\mathrm{.}64$ per franc when the spot rate is $$0\mathrm{.}64$ and

pays a premium of $$0\mathrm{.}001$ per franc. The spot rate increases to $$0\mathrm{.}643$ at December $31,2023,$ causing the fair value of the option to

increase to $$6,000.$ By March $15,2024,$ when the raw materials are purchased, the spot rate has climbed to $$0\mathrm{.}66,$ resulting in a fair

value for the option of $$32,000.$ The raw materials are used in assembling finished products, which are sold by December $31,2024,$

when Maas prepares its annual financial statements.

Required:

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?

Note: Negative amounts should be entered with a minus sign.

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

cost of $1,600,000$ francs on March $15,2024.$ To hedge this forecasted transaction, on December $15,2023,$ the company acquires a call

option to purchase $1,600,000$ francs in three months. Maas selects a strike price of $$0\mathrm{.}64$ per franc when the spot rate is $$0\mathrm{.}64$ and

pays a premium of $$0\mathrm{.}001$ per franc. The spot rate increases to $$0\mathrm{.}643$ at December $31,2023,$ causing the fair value of the option to

increase to $$6,000.$ By March $15,2024,$ when the raw materials are purchased, the spot rate has climbed to $$0\mathrm{.}66,$ resulting in a fair

value for the option of $$32,000.$ The raw materials are used in assembling finished products, which are sold by December $31,2024,$

when Maas prepares its annual financial statements.

Required:

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.

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

Note: If no entry is required for a transaction$/$event$,$ select $"$No Journal Entry Required" in the first account field.

Journal entry worksheet

Record purchase of foreign currency option as an asset.

Note: Enter debits before credits.