Question

Based on past experience, Leickner Company expects to purchase raw materials from a foreign supplier at a cost of 1,000,000 mReq A Reg B and C Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw maJournal entry worksheet < 1 2 3 4 5 6 7 8 9 Record entry for order placed with foreign supplier. Note: Enter debits before crJournal entry worksheet < 1 2 3 4 5 6 7 8 9 Record the entry to recognize the increase in the value of the foreign currency oJournal entry worksheet < 1 2 3 5 6 7 8 9 Record entry to recognize the decrease in the time value of the option as an expensJournal entry worksheet 6 7 8 9 Record the entry to recognize the increase in the value of the foreign currency option. Note:Journal entry worksheet < 1 2 3 4 5 6 7 Record gain or loss on the foreign currency option. Note: Enter debits before creditsJournal entry worksheet < 1 2 11. Toe 3 4 5 6 7 8 9 Record the sale. Note: Enter debits before credits. Date General JournalJournal entry worksheet < 1 2 3 4 5 6 7 Record the receipt of marks. Note: Enter debits before credits. Date General JournalJournal entry worksheet < 1 2 3 4 5 6 7 8 Record entry to transfer the amount accumulated in AOCI. Note: Enter debits beforeReg A Req B and C b. What is the overall impact on net income over the two accounting periods? (In case of negative impact on

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Answer #1

Entry No.1

12/15/2017 - No Entry required

Entry No.2

12/15/2017 - No Entry required

Entry No.3

12/31/2017 - No Entry required

Entry No.4

Option Expenses ..... Dr. 185.00

To Option Premium Cr... 185.00

(proportionate option premium debited for the period from12/15/2017 to 12/31/2017

Entry No 5

03/15/2018

Supplier A/c Dr.. 10,000

To Foreign Currency Option - 10,000

(Being foreign Exchange gain on 1,000,000 @ $0.01)

Entry No. 6

Foreign currency Option Dr.. 10,000

To AOCI .. 10,000

Entry No. 7

Purchase A/c Dr. 600,000

To Supplier A/c 600,000

(Being Material Purchased)

Entry No 8.

Supplier A/c Dr. 600,000

To Marks .... 590,000

To Foreign Currency Option 10,000

(Transfer to Marks)

Entry No.9

AOCI ...Dr. 10,000

To Gain on Option ... 10,000

(Being Gain on Option Contract)

Part B

Net Income in 2017 - (-)185.00

Net Income in 2018 - 9185.00 (Option Income less premium)

Part C.

Payment to Supplier - 590,000

Option Premium 1,000

Total 591,000.

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