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On November 30, 2020, Walter Corporation (a U.S.-based company) forecasts the sale of equipment to a foreign customer at a price of 500,000 crowns. The equipment is expected to be delivered on January 31, 2021, with payment received upon delivery. Also on November 30, 2020, Walter pays $3,000 for an option to sell 500,000 crowns on January 31, 2021, at a strike price of $0.52. Walter properly designates its foreign currency option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The following U.S. dollar-crown exchange rates apply: Date November 30, 2020 December 31, 2020 January 31, 2021 Spot Rate $0.53 0.50 0.49 Put Option Premium for January 31, 2021 (strike price $0.52) $0.006 0.024 N/A Walter delivers the equipment to the foreign customer on January 31, 2021, and immediately receives 500,000 crowns. a. Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. b. What is the impact on net income in 2020? c. What is the impact on net income in 2021?

On November 30, 2020, Walter Corporation (a U.S.-based company) forecasts the sale of equipment to a foreign customer at a price of 500,000 crowns. The equipment is expected to be delivered on January 31, 2021, with payment received upon delivery. Also on November 30, 2020, Walter pays $3,000 for an option to sell 500,000 crowns on January 31, 2021, at a strike price of $0.52. Walter properly designates its foreign currency option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The following U.S. dollar-crown exchange rates apply: Date November 30, 2020 December 31, 2020 January 31, 2021 Spot Rate $0.53 0.50 0.49 Put Option Premium for January 31, 2021 (strike price $0.52) $0.006 0.024 N/A Walter delivers the equipment to the foreign customer on January 31, 2021, and immediately receives 500,000 crowns. a. Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. b. What is the impact on net income in 2020? c. What is the impact on net income in 2021?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1 bok - int n rences Req A Req B and C Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list 1 Record the forecasted sale. 2 Record the purchase of the foreign currency option. 3 Record the entry to adjust the carrying value the option to its fair value. 4 Record the entry to recognize the change in the time value of the option. 5 Record the entry to adjust the carrying value of the option to its fair value. 6 Record the entry to recognize the change in the time value of the option. Note: journal entry has been entered Record entry Req A Clear entry Req B and C X G b. Impact on net income in 2020 c. Impact on net income in 2021 Credit Show Transcribed Text Complete this question by entering your answers in the tabs below. View general journal 222 > b. What is the impact on net income in 2020? c. What is the impact on net income in 2021? (Negative amounts should be entered with a minus sign. Do not round intermediate calculations.) Show less A
Transcribed Image Text:1 bok - int n rences Req A Req B and C Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list 1 Record the forecasted sale. 2 Record the purchase of the foreign currency option. 3 Record the entry to adjust the carrying value the option to its fair value. 4 Record the entry to recognize the change in the time value of the option. 5 Record the entry to adjust the carrying value of the option to its fair value. 6 Record the entry to recognize the change in the time value of the option. Note: journal entry has been entered Record entry Req A Clear entry Req B and C X G b. Impact on net income in 2020 c. Impact on net income in 2021 Credit Show Transcribed Text Complete this question by entering your answers in the tabs below. View general journal 222 > b. What is the impact on net income in 2020? c. What is the impact on net income in 2021? (Negative amounts should be entered with a minus sign. Do not round intermediate calculations.) Show less A
On November 30, 2020, Walter Corporation (a U.S.-based company) forecasts the sale of equipment to a foreign customer at a price of 500,000 crowns. The equipment is expected to be delivered on January 31, 2021, with payment received upon delivery. Also on November 30, 2020, Walter pays $3,000 for an option to sell 500,000 crowns on January 31, 2021, at a strike price of $0.52. Walter properly designates its foreign currency option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The following U.S. dollar-crown exchange rates apply: Date November 30, 2020 December 31, 2020 January 31, 2021 Spot Rate $ 0.53 Req A 0.50 0.49 Walter delivers the equipment to the foreign customer on January 31, 2021, and immediately receives 500,000 crowns. a. Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. b. What is the impact on net income in 2020? c. What is the impact on net income in 2021? Req B and C Put Option Premium for January 31, 2021 (strike price $0.52). $0.006 0.024 N/A Complete this question by entering your answers in the tabs below. Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Transcribed Image Text:On November 30, 2020, Walter Corporation (a U.S.-based company) forecasts the sale of equipment to a foreign customer at a price of 500,000 crowns. The equipment is expected to be delivered on January 31, 2021, with payment received upon delivery. Also on November 30, 2020, Walter pays $3,000 for an option to sell 500,000 crowns on January 31, 2021, at a strike price of $0.52. Walter properly designates its foreign currency option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The following U.S. dollar-crown exchange rates apply: Date November 30, 2020 December 31, 2020 January 31, 2021 Spot Rate $ 0.53 Req A 0.50 0.49 Walter delivers the equipment to the foreign customer on January 31, 2021, and immediately receives 500,000 crowns. a. Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. b. What is the impact on net income in 2020? c. What is the impact on net income in 2021? Req B and C Put Option Premium for January 31, 2021 (strike price $0.52). $0.006 0.024 N/A Complete this question by entering your answers in the tabs below. Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency option and export sale. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
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