Problem Chapter 7 (Worth 12 points.)

On December 1, 20x1 Pimlico made sales to a customer in India and recorded Accounts Receivable of 10,000,000 rupees. The customer has until March 1, 20x2 to pay. On December 1,20x1, Pimlico paid $500 for a put option to sell rupees at a strike price of $2.30 per 100 rupees on March 1, 20x2, which was the spot rate on December 1,20x1. OnDecember 31,20x1, the spot rate was $2.80 per 100 rupees and the option premium was $0,004 per 100 rupees.

Answer the following. Show'supporting calculations in good accounting form.

1. What is the fair value of the option on December 1,20x1?^:^ q _r

2. What is the fair value of the option on December 31, 20x1?^-^

3. What is the foreign currency exchange gain or loss on December 31, 20x1? Jtl^COQ ^^'^

4. If the spot rate on March 1, 20x2 was $2.45 per 100 rupees, what is the foreign currency exchange gain or loss that should be recorded that day Y^ gr ^\

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Chapter 8 Multiple Choice