On June 1, Hamilton Corporation purchased goods from a foreign supplier at a price of 1,000,000 markkas.

Question:

On June 1, Hamilton purchased goods from a foreign supplier at a price of 1,000,000 markkas. It will make payment in three months on September 1. On June 1, Hamilton acquired an option to purchase 1,000,000 markkas in three months at a strike price of $0.085. Relevant exchange rates and option premiums for the markka are as follows:

On June 1, Hamilton Corporation purchased goods from a foreign

Hamilton must close its books and prepare its second-quarter financial statements on June 30.
a. Assuming that Hamilton designates the foreign currency option as a cash flow hedge of a foreign currency payable, prepare journal entries for these transactions in U.S. dollars. What is the impact on net income over the two accounting periods?
b. Assuming that Hamilton designates the foreign currency option as a fair value hedge of a foreign currency payable, prepare journal entries for these transactions in U.S. dollars. What is the impact on net income over the two accountingperiods?

Financial Statements
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