Chapter_9_day_2_solutions

Chapter_9_day_2_solutions - 15. B 16. D The easiest way to...

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15. B 16. D The easiest way to solve problems 15 and 16 is to prepare journal entries for the option fair value hedge and the firm commitment. The journal entries are as follows: 9/1/09 Foreign Currency Option $2,000 Cash $2,000 12/31/09 Foreign Currency Option $300 Gain on Foreign Currency Option $300 Loss on Firm Commitment $980.30 Firm Commitment $980.30 [($.79 – $.80) x 100,000 = $1,000 x .9803 = $980.30] Net impact on 2009 net income: Gain on Foreign Currency Option $300.00 Loss on Firm Commitment (980 .30 ) $(680 .30 ) 3/1/10 Foreign Currency Option $700 Gain on Foreign Currency Option $700 Loss on Firm Commitment $2,019.70 Firm Commitment $2,019.70 [($.77 – $.80) x 100,000 = $3,000 – $980.30 = $2,019.70] Foreign Currency (C$) $77,000 Sales $77,000 Cash $80,000 Foreign
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Currency (C$) $77,000 Foreign Currency Option 3,000 Firm Commitment $3,000 Adjustment to Net Income $3,000
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16. (continued) Net impact on 2010 net income: Gain on Foreign Currency Option $ 700.00 Loss on Firm Commitment
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This note was uploaded on 04/05/2010 for the course ACCY 260 taught by Professor Yu during the Spring '10 term at Ferrum.

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Chapter_9_day_2_solutions - 15. B 16. D The easiest way to...

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