None On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,110,000 pesos and will receivepayment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,110,000 pesos in three months at a strikeprice of $0.076. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value isrecognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows:Put Option Premiumfor September 1(strike price $0.076)DateJune 1June 30September 1Spot Rate$ 0.0760.0750.074$ 0.00390.0029N/AMaxwell must close its books and prepare its second-quarter financial statements on June 30.e-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, preparejournal entries for the export sale and related hedge in U.S. dollars.a-2. What is the impact on net income over the two accounting periods?b-1. Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, preparejournal entries for the export sale and related hedge in U.S. dollars.b-2. What is the impact on net income over the two accounting periods?Complete this question by entering your answers in the tabs below.Req A1Req A2Req B1Req B2

Journals are prepared by the corporation to record its day-to-day business-related transactions of…

Answered: a-1. Assuming that Maxwell designates…

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,100,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,100,000 pesos in three months at a strike price of $0.074. 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 1 (strike price $0.074) June 1 $ 0.074 $ 0.0037 June 30 0.073 0.0028 September 1 0.072 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. Required: a-1. 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 U.S. dollars. a-2. What is the…
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,110,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,110,000 pesos in three months at a strike price of $0.076. 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 June 1 June 30 September 1 Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. 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 U.S. dollars. a-2. What is the impact on net income over the two accounting periods? b-1. Assuming that Maxwell designates the foreign currency option as a fair value…
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On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.09 per Norwegian krone, Derby enters into a forward contract to purchase 6 02,500 Norwegian kroner at a three-month forward rate of $0.10. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.098 per Norwegian krone, Derby orders and receives the merchandise, paying 602,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss?
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a-1. 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 U.S. dollars.