On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,170,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,170,000 pesos in three months at a strike price of $0.082. 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: Date June 1 June 30 September 1 Spot Rate $0.082 0.081 0.080 Put Option Premium for September 1 (strike price $0.082) $ 0.0045 0.0032 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming 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 U.S. dollars. a-2. What is the impact on net income over the two accounting periods? b-1. Assuming 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 U.S. dollars. b-2. What is the impact on net income over the two accounting periods? View transaction list Journal entry worksheet 1 2 3 5 6 7 8 IIII. 12 > Record the sale of goods. Note: Enter debits before credits. Date General Journal 06/01 Accounts receivable (P) Sales Debit Credit Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 N 3 4 5 6 7 8 12 > Record the purchase of the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 06/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet EE... Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the fair value of the option. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal Journal entry worksheet Record the foreign exchange gain or loss on the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 2 3 4 5 6 7 8 12 > Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the fair value of the option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 5 6 7 8 9 12 > Record the foreign exchange gain or loss on the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the time value of the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record receipt of the foreign currency. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the exercise of the option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal Req A1 Req A2 Reg B1 Req B2 What is the impact on net income over the two accounting periods? (Do not round intermediate calculations. Negative amount should be entered with a minus sign.) Impact on net income View transaction list Journal entry worksheet > Record the sale of goods. Note: Enter debits before credits. Debit Credit Date 06/01 General Journal Accounts receivable (P) Sales Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 2 3 4 5 6 7 00 12 I.... Record the purchase of the foreign currency option. Note: Enter debits before credits. Debit Credit Date 06/01 General Journal Foreign currency option Sales Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 2 3 4 5 6 6 7 8 IIII. 12 > Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. Date General Journal Debit Credit 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet IIII. Record the foreign exchange gain or loss on the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the fair value of the option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet III. Record the change in the time value of the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the exercise of the option. Note: Enter debits before credits. Debit Credit Date 09/01 General Journal Cash Foreign currency (P) Foreign currency option Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Reg A1 Req A2 Req B1 Reg B2 What is the impact on net income over the two accounting periods? (Do not round intermediate calculations. Negative amount should be entered with a minus sign.) Impact on net income On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,170,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,170,000 pesos in three months at a strike price of $0.082. 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: Date June 1 June 30 September 1 Spot Rate $0.082 0.081 0.080 Put Option Premium for September 1 (strike price $0.082) $ 0.0045 0.0032 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming 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 U.S. dollars. a-2. What is the impact on net income over the two accounting periods? b-1. Assuming 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 U.S. dollars. b-2. What is the impact on net income over the two accounting periods? View transaction list Journal entry worksheet 1 2 3 5 6 7 8 IIII. 12 > Record the sale of goods. Note: Enter debits before credits. Date General Journal 06/01 Accounts receivable (P) Sales Debit Credit Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 N 3 4 5 6 7 8 12 > Record the purchase of the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 06/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet EE... Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the fair value of the option. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal Journal entry worksheet Record the foreign exchange gain or loss on the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 2 3 4 5 6 7 8 12 > Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the fair value of the option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 5 6 7 8 9 12 > Record the foreign exchange gain or loss on the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the time value of the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record receipt of the foreign currency. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the exercise of the option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal Req A1 Req A2 Reg B1 Req B2 What is the impact on net income over the two accounting periods? (Do not round intermediate calculations. Negative amount should be entered with a minus sign.) Impact on net income View transaction list Journal entry worksheet > Record the sale of goods. Note: Enter debits before credits. Debit Credit Date 06/01 General Journal Accounts receivable (P) Sales Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 2 3 4 5 6 7 00 12 I.... Record the purchase of the foreign currency option. Note: Enter debits before credits. Debit Credit Date 06/01 General Journal Foreign currency option Sales Record entry Clear entry View general journal View transaction list Journal entry worksheet 1 2 3 4 5 6 6 7 8 IIII. 12 > Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. Date General Journal Debit Credit 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet IIII. Record the foreign exchange gain or loss on the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 06/30 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the entry to adjust the value of the foreign currency accounts receivable. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the change in the fair value of the option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet III. Record the change in the time value of the foreign currency option. Note: Enter debits before credits. General Journal Debit Credit Date 09/01 Record entry Clear entry View general journal View transaction list Journal entry worksheet Record the exercise of the option. Note: Enter debits before credits. Debit Credit Date 09/01 General Journal Cash Foreign currency (P) Foreign currency option Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Reg A1 Req A2 Req B1 Reg B2 What is the impact on net income over the two accounting periods? (Do not round intermediate calculations. Negative amount should be entered with a minus sign.) Impact on net income