On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,230,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,230,000 pesos in three months at a strike price of $0.090. 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 $0.090)
June 1	$	0.090		$	0.0053
June 30		0.089			0.0036
September 1		0.088			N/A

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

1. 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.
2. a-2. What is the impact on net income over the two accounting periods?
3. 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.
4. b-2. What is the impact on net income over the two accounting periods?

REQ A1.

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.

Journal Entries please

1. Record the sale of goods
2. Record the purchase of the foreign currency option
3. Record the entry to adjust the value of the foreign currency accounts receivable.
4. Record the change in the fair value of the option.
5. Record the foreign exchange gain or loss on the foreign currency option.
6. Record the change in the time value of the foreign currency option.
7. Record the entry to adjust the value of the foreign currency accounts receivable.
8. Record the change in the fair value of the option
9. Record the foreign exchange gain or loss on the foreign currency option.
10. Record the change in the time value of the foreign currency option.
11. Record receipt of the foreign currency.
12. Record the exercise of the option.

REQ A2

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

REQ B1

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.

Journal entries please!

1. Record the sale of goods
2. Record the purchase of the foreign currency option
3. Record the entry to adjust the value of the foreign currency accounts receivable.
4. Record the change in the fair value of the option.
5. Record the foreign exchange gain or loss on the foreign currency option.
6. Record the change in the time value of the foreign currency option.
7. Record the entry to adjust the value of the foreign currency accounts receivable.
8. Record the change in the fair value of the option
9. Record the foreign exchange gain or loss on the foreign currency option.
10. Record the change in the time value of the foreign currency option.
11. Record receipt of the foreign currency.
12. Record the exercise of the option.

REQ B2

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