On June 1, Sandy Corporation sold goods to a foreign customer for 100,000 pesos. It will receive payment in three months on September 1. On June 1, Sandy acquired an option to sell 100,000 pesos in three months at a strike price of $0.62. Relevant exchange rates and option premiums for the peso are as follows:

Date Spot Rate Put Option Premium for September 1 (strike price $0.062)

June 1 $0.062 $0.0025

June 30 $0.066 $0.0018

Sept 1 $0.061 N/A

Sandy must close its books and prepare its second-quarter financial statement on June 30.

Assume that Sandy designates the foreign currency option as a fair value hedge of a foreign currency receivable.

Required:

a)Prepare journal entries for these transactions in U.S. dollars.

b)What is the impact on net income for the period ended on 6/30/2017?

c)What is the impact on net income for the period ended on 9/1/2017?

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