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Please help with a, b, and c. Option contract designated as a cash flow hedge of a forecasted foreign-currency-denominated sales transaction, strengthening SUS On January
Please help with a, b, and c.
Option contract designated as a cash flow hedge of a forecasted foreign-currency-denominated sales transaction, strengthening SUS On January 5, 2019, our company receives a nonbinding purchase order for sale of merchandise to a customer in Slovakia, with delivery of the merchandise, and payment is due from the customer upon delivery. On January 5, 2019, our company also purchases an option that gives our style" option) for $1.28:1 (i.e., the spot rate on January 5, 2019). On January 5, 2019, the fair value of the option (i.e., the option premium) is $1 of the change in option value attributable to factors excluded from the assessment of hedge effectiveness (i.e., the non-intrinsic-value compon 2019, to June 30, 2019, are as follows: Option Contract Change Change in Other Change Spot Rate Fair in Fair Intrinsic Intrinsic Sources in Other ($US =1) Transaction value Value Value Value of Value Value $19,500 $19.5000 Mar. 31, 2019 44,200 $24.700 532.500 11,700 $17.800) Jun 30, 2019 $773,500 58,500 14.300 58,500 26,000 (11.700) Sale Date Jan. 5. 2019 1.28 1.23 1.19 $32.500 Derived from an option pricing model such as the Black-Scholes model (650,000 $1.28:51) - (650,000 x $1.23:51) (650,000 $1.28:1) - (650,000 $1.19:1) d Fair value - intrinsic value (.e., equals the residual fair value derived from all sources except for intrinsic value) a. Prepare the journal entries to record all the adjustments required for the forecasted sale and option contract on January 5, 2019, March 31, 2 Note: If no entry is required, select "No entry" as your answers under Description and leave the debit and credit answers blank (zero). merchandise scheduled for June 30, 2019. The customer preliminarily agreed to pay 650,000 for the company the right to sell (i.e., put) 650,000 on any date until June 30, 2019 (i.e., it is an "American- 19,500. In addition, our company elected to immediately include in the determination of net income all nents, like time value). The relevant exchange rates and related balances for the period from January 5, 2019, and June 30, 2019. Hedged Transaction Date Description Debit Credit 1/5/19 0 0 O O O O 3/31/19 0 0 6/30/19 0 0 o 0 CF Hedge Note: Entries assume all of excluded option value change runs through income. Debit Date Description Credit 1/5/19 0 0 0 0 3/31/19 0 0 0 O To recognize change in fair value 0 0 0 0 To recognize change in other sources. 6/30/19 0 0 0 0 To recognize change in fair value 0 0 0 > 0 To recognize change in other sources. 0 0 0 0 To record net settlement. 0 0 0 To record reclassification. c. What amount of sales was recognized in the quarter ending March 31, 2019? $ 0 What amount of sales was recognized in the quarter ending June 30, 2019? $ 0 What is the total amount of sales recognized across the quarters ending March 31 and June 30, 2019? $ 0 Option contract designated as a cash flow hedge of a forecasted foreign-currency-denominated sales transaction, strengthening SUS On January 5, 2019, our company receives a nonbinding purchase order for sale of merchandise to a customer in Slovakia, with delivery of the merchandise, and payment is due from the customer upon delivery. On January 5, 2019, our company also purchases an option that gives our style" option) for $1.28:1 (i.e., the spot rate on January 5, 2019). On January 5, 2019, the fair value of the option (i.e., the option premium) is $1 of the change in option value attributable to factors excluded from the assessment of hedge effectiveness (i.e., the non-intrinsic-value compon 2019, to June 30, 2019, are as follows: Option Contract Change Change in Other Change Spot Rate Fair in Fair Intrinsic Intrinsic Sources in Other ($US =1) Transaction value Value Value Value of Value Value $19,500 $19.5000 Mar. 31, 2019 44,200 $24.700 532.500 11,700 $17.800) Jun 30, 2019 $773,500 58,500 14.300 58,500 26,000 (11.700) Sale Date Jan. 5. 2019 1.28 1.23 1.19 $32.500 Derived from an option pricing model such as the Black-Scholes model (650,000 $1.28:51) - (650,000 x $1.23:51) (650,000 $1.28:1) - (650,000 $1.19:1) d Fair value - intrinsic value (.e., equals the residual fair value derived from all sources except for intrinsic value) a. Prepare the journal entries to record all the adjustments required for the forecasted sale and option contract on January 5, 2019, March 31, 2 Note: If no entry is required, select "No entry" as your answers under Description and leave the debit and credit answers blank (zero). merchandise scheduled for June 30, 2019. The customer preliminarily agreed to pay 650,000 for the company the right to sell (i.e., put) 650,000 on any date until June 30, 2019 (i.e., it is an "American- 19,500. In addition, our company elected to immediately include in the determination of net income all nents, like time value). The relevant exchange rates and related balances for the period from January 5, 2019, and June 30, 2019. Hedged Transaction Date Description Debit Credit 1/5/19 0 0 O O O O 3/31/19 0 0 6/30/19 0 0 o 0 CF Hedge Note: Entries assume all of excluded option value change runs through income. Debit Date Description Credit 1/5/19 0 0 0 0 3/31/19 0 0 0 O To recognize change in fair value 0 0 0 0 To recognize change in other sources. 6/30/19 0 0 0 0 To recognize change in fair value 0 0 0 > 0 To recognize change in other sources. 0 0 0 0 To record net settlement. 0 0 0 To record reclassification. c. What amount of sales was recognized in the quarter ending March 31, 2019? $ 0 What amount of sales was recognized in the quarter ending June 30, 2019? $ 0 What is the total amount of sales recognized across the quarters ending March 31 and June 30, 2019? $ 0Step by Step Solution
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