Amaretta Company (a U.S.-based company) ordered merchandise from a foreign supplier on November 20 at a...

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Amaretta Company (a U.S.-based company) ordered merchandise from a foreign supplier on November 20 at a price of 1,110,000 rupees when the spot rate was $0.050 per rupee. Delivery and payment were scheduled for December 20. On November 20, Amaretta acquired a call option on 1,110,000 rupees at a strike price of $0.050, paying a premium of $0.001 per rupee. The company designates the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. The option's time value is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income. The merchandise arrives, and Amaretta makes payment according to schedule. Amaretta sells the merchandise by December 31, when it closes its books. a. Assuming a spot rate of $0.053 per rupee on December 20, prepare all journal entries to account for the foreign currency option, foreign currency firm commitment, and purchase of inventory. b. Assuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currency option, foreign currency firm commitment, and purchase of inventory. Complete this question by entering your answers in the tabs below. Required A Reqiured B Assuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currency option, foreign currency firm commitment, and purchase of inventory. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No 1 2 | | 3 4 5 6 7 8 9 10 Date 11/20 11/20 12/20 12/20 12/20 12/20 12/20 12/31 12/31 12/31 Foreign currency option Cash No journal entry required Firm commitment Foreign exchange gain or loss X Answer is not complete. Foreign exchange gain or loss Foreign currency option Foreign currency (rupees) Cash Foreign exchange gain or loss Other comprehensive income Cost of goods sold General Journal Merchandise Inventory Foreign currency (rupees) Merchandise Inventory No journal entry required Cost of goods sold Firm commitment < Required A 30 > >> 33 ›› ✓ 33 ✓ 30 X ›› ✓ Reqiured B > Debit 1,110 2,220✔ 1,110✔ 1,110 x 53,280✔✔ 53,280 53,280✔ 2,220✔ Credit 1,110 2,220 1,110 1,110 x 53,280 53,280✔ 53,280 2,220✔ Amaretta Company (a U.S.-based company) ordered merchandise from a foreign supplier on November 20 at a price of 1,110,000 rupees when the spot rate was $0.050 per rupee. Delivery and payment were scheduled for December 20. On November 20, Amaretta acquired a call option on 1,110,000 rupees at a strike price of $0.050, paying a premium of $0.001 per rupee. The company designates the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. The option's time value is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income. The merchandise arrives, and Amaretta makes payment according to schedule. Amaretta sells the merchandise by December 31, when it closes its books. a. Assuming a spot rate of $0.053 per rupee on December 20, prepare all journal entries to account for the foreign currency option, foreign currency firm commitment, and purchase of inventory. b. Assuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currency option, foreign currency firm commitment, and purchase of inventory. Complete this question by entering your answers in the tabs below. Required A Reqiured B Assuming a spot rate of $0.048 per rupee on December 20, prepare all journal entries to account for the foreign currency option, foreign currency firm commitment, and purchase of inventory. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No 1 2 | | 3 4 5 6 7 8 9 10 Date 11/20 11/20 12/20 12/20 12/20 12/20 12/20 12/31 12/31 12/31 Foreign currency option Cash No journal entry required Firm commitment Foreign exchange gain or loss X Answer is not complete. Foreign exchange gain or loss Foreign currency option Foreign currency (rupees) Cash Foreign exchange gain or loss Other comprehensive income Cost of goods sold General Journal Merchandise Inventory Foreign currency (rupees) Merchandise Inventory No journal entry required Cost of goods sold Firm commitment < Required A 30 > >> 33 ›› ✓ 33 ✓ 30 X ›› ✓ Reqiured B > Debit 1,110 2,220✔ 1,110✔ 1,110 x 53,280✔✔ 53,280 53,280✔ 2,220✔ Credit 1,110 2,220 1,110 1,110 x 53,280 53,280✔ 53,280 2,220✔

Answer rating: 100% (QA)

Answer Particulars Foreign currency Option 1040000 x 0001 To Cash No journal entry Foreign exchange ... View the full answer