On June1, Parker-Mae Corporation (a U.S.-based company) received an order to sell goods to a foreign customer at a price of 100,000 francs. Parker-Mae will ship the goods and receive payment in three months on September 1. On June 1, Parker-Mae purchased an option to sell 100,000 francs. in three months at a strike price of $1.00. It properly designated the option as a fair value hedge of a foreign currency firm commitment. The option's time value of the firm commitment is measured by referring to changes in the spot rate. Relevant exchange rates and option premiums for the
franc are as follows:

Parker-Mae Corporation must close its books and prepare its second-quarter financial statements on June 30.
a. Prepare journal entries for the foreign currency option and firm commitment.
b. What is the impact on net income over the two accounting periods?
c. What is the net cash inflow resulting from the sale of goods to the foreign customer?

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Put Option Premium for September 1 (strike price $1.00) Date Spot Rate June 1 June 30 September 1 $1.00 0.94 $0.020 0.072 0.90 N/A