Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 6. On May 1, 2013, PERFECT Co. anticipated the purchase of 85,000 units of merchandise from a foreign vendor. The purchase would probably occur
Problem 6. On May 1, 2013, PERFECT Co. anticipated the purchase of 85,000 units of merchandise from a foreign vendor. The purchase would probably occur on October 28, 2013 and require the payment of 1,250,000 foreign currencies (FC). On May 1, 2013, the company purchased a call option to buy 1,250,000FC at a strike price of 1FC=P0.27. An option premium of P14000 was paid. Changes in the value of the option will be excluded from the assessment of hedge effectiveness. For the year 2013, the following rates are as follows: May 1 0.25 P P Spot Rate Strike Price FV of call option May 31 0.28 0.27 17,500 June 30 0.30 0.27 39.000 Oct 28 0.32 0.27 0.27 14.000 6. The foreign exchange gain (loss) on option contract to be recognized in (1) equity and (2) earnings on June 30: A. P(25,000): P3,500 B. P(37,500): P21,500 C. P25,000 - P(21,500) D. P37,500 = P(3,500)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started