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On June 1 , Maxwell Corporation ( a U . S . - based company ) sold goods to a foreign customer at a price
On June Maxwell Corporation a USbased company sold goods to a foreign customer at a price of pesos and will receive payment in three months on September On June Maxwell acquired an option to sell pesos in three months at a strike price of $ The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows:
Maxwell must close its books and prepare its secondquarter financial statements on June
aAssuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in US dollars.
aWhat is the impact on net income over the two accounting periods?
bAssuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in US dollars.
bWhat is the impact on net income over the two accounting periods?
PLEASE RECORD THE FOLLOWING JOURNAL ENTRIES
Record the sale of goods
Record the purchase of the foreign currency option
Record the entry to adjust the value of the foreign currency accounts receivable
Record the change in the fair value of the option
Record the foreign exchange gain or loss on the foreign currency option
Record the change in the time value of the foreign currency option
Record the entry to adjust the value of the foreign currency accounts receivable
Record the change in the fair value of the option
Record the foreign exchange gain or loss on the foreign currency option
Record the change in the time value of the foreign currency option
Record receipt of the foreign currency
Record the exercise of the option
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