Put Optlon Premlum for September 1 (strike price $0.062) $0.0025 0.0018 Spot Rate $0.062 Date June 1 June 30 September 1 0.066 0.061 N/A
On June 1, Alexander Corporation sold goods to a foreign customer at a price of 1,000,000 pesos and will receive payment in three months on September 1. On June 1, Alexander acquired an option to sell 1,000,000 pesos in three months at a strike price of $0.062. Relevant exchange rates and option premiums for the peso are as follows:
Alexander must close its books and prepare its second-quarter financial statements on June 30.
a. Assuming that Alexander designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare
b. Assuming that Alexander designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. What is the impact on net income over the two accounting periods?
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