Question
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,040,000 pesos and will receive payment in
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,040,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,040,000 pesos in three months at a strike price of $0.066. 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 | Spot Rate | Put Option Premium for September 1 (strike price $0.066) | ||||
June 1 | $ | 0.066 | $ | 0.0029 | ||
June 30 | 0.065 | 0.0024 | ||||
September 1 | 0.064 | N/A |
Maxwell must close its books and prepare its second-quarter financial statements on June 30.
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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.
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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 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.
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b-2. What is the impact on net income over the two accounting periods?
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PLEASE BREAK APART JOURNAL ENTRIES INTO 12 SEPARATE ONES!
Current work for A1 (idk if it is complete and how to find the rest or any of B's)
No Date General Journal Debit Credit 1 06/01 91,200 Accounts receivable (P) Sales 91,200 2 06/01 4,902 Foreign currency option Cash 4,902 3 06/30 1,140 Foreign exchange gain or loss Accounts receivable (P) 1,140 4 06/30 520 Other comprehensive income Foreign currency option 520 5 06/30 1,140 Foreign exchange gain or loss Other comprehensive income 1,140 6 06/30 1,660 Foreign currency option Other comprehensive income 1,660 7 09/01 1,140 Foreign exchange gain or loss Accounts payable (P) 1,140 8 09/01 4,902 Other comprehensive income Foreign exchange gain or loss 4,902 9 09/01 4,902 Other comprehensive income Foreign exchange gain or loss 4,902 10 09/01 96,102 Foreign currency option Other comprehensive income 96,102 11 09/01 Foreign currency (P) Accounts receivable (P) 12 09/01 Cash Foreign currency (P) No Date General Journal Debit Credit 1 06/01 91,200 Accounts receivable (P) Sales 91,200 2 06/01 4,902 Foreign currency option Cash 4,902 3 06/30 1,140 Foreign exchange gain or loss Accounts receivable (P) 1,140 4 06/30 520 Other comprehensive income Foreign currency option 520 5 06/30 1,140 Foreign exchange gain or loss Other comprehensive income 1,140 6 06/30 1,660 Foreign currency option Other comprehensive income 1,660 7 09/01 1,140 Foreign exchange gain or loss Accounts payable (P) 1,140 8 09/01 4,902 Other comprehensive income Foreign exchange gain or loss 4,902 9 09/01 4,902 Other comprehensive income Foreign exchange gain or loss 4,902 10 09/01 96,102 Foreign currency option Other comprehensive income 96,102 11 09/01 Foreign currency (P) Accounts receivable (P) 12 09/01 Cash Foreign currency (P)Step by Step Solution
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