On June 1 , Maxwell Corporation ( a U . S . - based company ) sold
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Question:
On June Maxwell Corporation a USbased company sold goods to a foreign customer at a price of pesos and will receive payment in three months on September On June Maxwell acquired an option to sell pesos in three months at a strike price of $ The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows:
Date Spot Rate Put Option Premium for September strike price $
June $ $
June
September NA
Maxwell must close its books and prepare its secondquarter financial statements on June
Required:
a Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in US dollars.
a What is the impact on net income over the two accounting periods?
b Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in US dollars.
b What is the impact on net income over the two accounting periods?
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