Given its experience, Gamier Corporation expects that it will sell goods to a foreign customer at a

Question:

Given its experience, Gamier expects that it will sell goods to a foreign customer at a price of 1 million lire on March 15, Year 2. To hedge this forecasted transaction, a three-month put option to sell 1 million lire is acquired on December 15, Year 1. Gamier selects a of $0.15 per lire, paying a premium of $0,005 per unit, when the spot rate is $0.15. The spot rate decreases to $0.14 at December 31, Year 1, causing the fair value of the option to increase to $12,000. By March 15, Year 2, when the goods are delivered and payment is received from the customer, the spot rate has fallen to $0.13, resulting in a fair value for the option of $20,000.
Required:
Prepare all journal entries for the option hedge of a forecasted transaction and for the export sale, assuming that December 31 is Gamier Corporation's year-end. What is the overall impact on net income over the two accounting periods? What is the net cash inflow from this export sale? Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...