34 S On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,340,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,340,000 pesos in three months at a strike price of $0.098. 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: Date June 1 June 30 September 1 Spot Rate $ 0.098 0.097 0.096 Maxwell must close its books and prepare its second-quarter financial statements on June 30. 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. Put Option Premium for September 1 (strike price $0.098) $ 0.0061 0.0040 N/A a-2. What is the impact on net income over the two accounting periods? 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. b-2. What is the impact on net income over the two accounting periods? Req A1 Complete this question by entering your answers in the tabs below. Req A2 Req B1 Req B2
34 S On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,340,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,340,000 pesos in three months at a strike price of $0.098. 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: Date June 1 June 30 September 1 Spot Rate $ 0.098 0.097 0.096 Maxwell must close its books and prepare its second-quarter financial statements on June 30. 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. Put Option Premium for September 1 (strike price $0.098) $ 0.0061 0.0040 N/A a-2. What is the impact on net income over the two accounting periods? 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. b-2. What is the impact on net income over the two accounting periods? Req A1 Complete this question by entering your answers in the tabs below. Req A2 Req B1 Req B2
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:34
S
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,340,000 pesos and will
receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,340,000 pesos in three months at a
strike price of $0.098. 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:
Date
June 1
June 30
September 1
Spot Rate
$ 0.098
0.097
0.096
Maxwell must close its books and prepare its second-quarter financial statements on June 30.
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.
Put Option Premium
for September 1
(strike price $0.098)
$ 0.0061
0.0040
N/A
a-2. What is the impact on net income over the two accounting periods?
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.
b-2. What is the impact on net income over the two accounting periods?
Req A1
Complete this question by entering your answers in the tabs below.
Req A2
Req B1
Req B2
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 1 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education