Question
On June 1, Alexander Corporation sold goods to a foreign customer at a price of 1,110,000 pesos and will receive payment in three months on
On June 1, Alexander Corporation 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, Alexander acquired an option to sell 1,110,000 pesos in three months at a strike price of $0.055. Relevant exchange rates and option premiums for the peso are as follows:
| Date | Spot Rate | Put Option Premium for September 1 (strike price $0.055) | ||||
| June 1 | $ | 0.055 | $ | 0.0021 | ||
| June 30 | 0.059 | 0.0017 | ||||
| September 1 | 0.054 | N/A | ||||
Alexander must close its books and prepare its second-quarter financial statements on June 30.
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a-1. Assuming that Alexander designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars.
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Record the sale of merchandise.
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2
Record the foreign currency option.
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3
Record the entry for changes in the exchange rate.
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4
Record the change in the fair value of the option.
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5
Record the gain or loss on the option.
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6
Record the option expense.
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7
Record the entry for changes in the exchange rate.
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8
Record the change in the fair value of the option.
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9
Record the gain or loss on the option.
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10
Record the option expense.
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11
Record receipt of pesos.
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12
Record the exercise of the option.
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a-2. What is the impact on net income over the two accounting periods?
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b-1. Assuming that Alexander designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars.
-
Record the sale of merchandise.
-
2
Record the foreign currency option.
-
3
Record the entry for changes in the exchange rate.
-
4
Record the change in the fair value of the option.
-
5
Record the gain or loss on the option.
-
6
Record the option expense.
-
7
Record the entry for changes in the exchange rate.
-
8
Record the change in the fair value of the option.
-
9
Record the gain or loss on the option.
-
10
Record the option expense.
-
11
Record receipt of pesos.
-
12
Record the exercise of the option.
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b-2. What is the impact on net income over the two accounting periods?
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Secretarial Audits Under Corporate Laws And Annual Return Certification
Authors: CS Shilpa Dixit And CS Amogh Diwan CS Milind Kasodekar
1st Edition
9389449324, 978-9389449327
