On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,130,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,130,000 pesos in three months at a strike price of $0.078. 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 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?

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Date June 1 June 30 September 1 Spot Rate $ 0.078 0.277 0.276 Put Option Premium for September 1 (strike price $0.78) $ 0.8841 0.8030 N/A Reg A1 Reg A2 Reg B1 Reg B2 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. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet N Record the sale of goods. Note: Enter debits before credits General Journal Debit Credit Date 06/01 Record entry Clear entry View general journal Reg A1 Reg A2 Reg 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 Reg A1 Reg A2 Reg B1 Reg B2 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. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 1 2 3 4 5 6 7 8 12 > Record the sale of goods. Note: Enter debits before credits. Date General Journal Debit Credit 06/01 Record entry Clear entry View general journal Reg A1 Reg A2 Rea Bi 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 Date June 1 June 30 September 1 Spot Rate $ 0.078 0.277 0.276 Put Option Premium for September 1 (strike price $0.78) $ 0.8841 0.8030 N/A Reg A1 Reg A2 Reg B1 Reg B2 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. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet N Record the sale of goods. Note: Enter debits before credits General Journal Debit Credit Date 06/01 Record entry Clear entry View general journal Reg A1 Reg A2 Reg 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 Reg A1 Reg A2 Reg B1 Reg B2 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. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 1 2 3 4 5 6 7 8 12 > Record the sale of goods. Note: Enter debits before credits. Date General Journal Debit Credit 06/01 Record entry Clear entry View general journal Reg A1 Reg A2 Rea Bi 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