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"On June 1, Hamilton Corporation purchased goods f...

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"On June 1, Hamilton Corporation purchased goods from a foreign supplier at a price of 1,000,000 markkas. It will make payment in three months on September 1. On June 1, Hamilton acquired an option to purchase 1,000,000 markkas in three months at a strike price of $0.085. Relevant exchange rates and option premiums for the markka are as follows: Date Spot Rate Call Option Premium for September 1 (strike price $0.085) June 1 $0.085 $0.002 June 30 $0.088 $0.004 Sept 1 $ 0.090 n/a Hamilton must close its books and prepare its second-quarter financial statements on June 30. Assuming that Hamilton designates the foreign currency option as a cash flow hedge of a foreign currency payable. (a-1)Prepare journal entries for these transactions in U.S. dollars. (a-2) What is the impact on net income over the two accounting periods? Assuming that Hamilton designates the foreign currency option as a fair value hedge of a foreign currency payable. (b-1)Prepare journal entries for these transactions in U.S. dollars. (b-2) What is the impact on net income over the two accounting periods?

 

Paper#11143 | Written in 18-Jul-2015

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