On December 1, 2018, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for
Question:
On December 1, 2018, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2019. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2018. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:
Date | Spot Rate | Option Premium | ||
December 1, 2018 | $ | 0.97 | $ | 0.05 |
December 31, 2018 | $ | 0.95 | $ | 0.04 |
February 1, 2019 | $ | 0.94 | $ | 0.03 Compute the fair value of the foreign currency option at February 1, 2019. 27) A) $7,500. B) $6,000. C) $3,000. D) $1,500. E) $4,500. Compute the U.S. dollars received on February 1, 2019. 28) A) $141,000 B) $142,500. C) $136,500. D) $138,000. E) $145,500. |
Fundamentals of Financial Accounting
ISBN: 978-1259864230
6th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby