On June 1, Alexander Corporation sold goods to a foreign customer at a price of 1,600,000 pesos and will receive payment in three months on September 1. On June 1, Alexander acquired an option to sell 1,600,000 pesos in three months at a strike price of $0.073. Relevant exchange rates and option premiums for the peso are as follows:

Date	Spot Rate			Put Option Premium for September 1 (strike price $0.073)
June 1	$	0.073		$	0.0024
June 30		0.079			0.0021
September 1		0.071			N/A

Alexander must close its books and prepare its second-quarter financial statements on June 30.

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.

b-2. What is the impact on net income over the two accounting periods?

Req B1.

1.Record the sale of merchandise.

2.Record the sale of merchandise.

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.

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