1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
IRISSAK [1]
3 years ago
13

Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost

of 1,000,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,000,000 francs in three months. Maas selects a strike price of $0.58 per franc when the spot rate is $0.58 and pays a premium of $0.005 per franc. The spot rate increases to $0.584 at December 31, 2020, causing the fair value of the option to increase to $7,500. By March 15, 2021, when the raw materials are purchased, the spot rate has climbed to $0.59, resulting in a fair value for the option of $10,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials. What is the overall impact on net income over the two accounting periods
Business
1 answer:
Lerok [7]3 years ago
3 0

Answer:

A. 15-Dec-20

Dr Foreign Currency Option $5,000

Cr Cash $5,000

2. 15-Dec-20 No Journal Entry Required

3 31-Dec-20 Dr Foreign Currency Option

$4,000

Cr To Accumulated - Other Comrehensive Income $4,000

4 31-Dec-20 Dr Option Expense (AOCI) $1,500

Cr To Foreign currency option $1,500

5 15-Mar-21 Dr Foreign Currency Option $6,000

Cr To Accumulated - Other Comrehensive Income $6,000

6 15-Mar-21 Dr Option Expense (AOCI) $3,500

Cr To Foreign currency option $3,500

7 15-Mar-21 Cash A/c $10,000

Cr To Foreign currency option $10,000

8 15-Mar-21 Dr Raw material inventory $590,000

Cr To Cash $590,000

9 15-Mar-21 Dr Accumulated - Other Comprehensive Income $6,000

Cr To Gain on sale of Option (Income statement) $6,000

b. Impact on net income in 2020= $2,500

Impact on net income in 2021 = $4,500

Explanation:

A. Preparation of all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials

15-Dec-20

Dr Foreign Currency Option Dr (1,000,000*0.005) $5,000

Cr To Cash $5,000

(Being call option purchased to acquire 1000000 marks at $0.005 per mark)

2 15-Dec-20 No Journal Entry Required

3 31-Dec-20 Dr Foreign Currency Option

[($0.584 - 0.58)*1000000] $4,000

Cr To Accumulated - Other Comrehensive Income $4,000

(Being adjustment of increase in fair value of option)

4 31-Dec-20 Dr Option Expense (AOCI) ($4,000 + $5,000 - $7,500) $1,500

Cr To Foreign currency option $1,500

(Being time value reduction of foreign currency option)

5 15-Mar-21 Dr Foreign Currency Option [(0.59 - 0.584)*1000000] $6,000

Cr To Accumulated - Other Comrehensive Income $6,000

(Being adjustment of increase in fair value of option)

6 15-Mar-21 Dr Option Expense (AOCI) ($7,500 + $6,000 - $10,000) $3,500

Cr To Foreign currency option $3,500

(Being time value reduction of foreign currency option)

7 15-Mar-21 Cash A/c $10,000

Cr To Foreign currency option $10,000

(Being sale of foreign currency option)

8 15-Mar-21 Dr Raw material inventory $590,000

Cr To Cash (1000000*0.59) $590,000

(To record purchase of raw material)

9 15-Mar-21 Dr Accumulated - Other Comprehensive Income $6,000

Cr To Gain on sale of Option (Income statement) $6,000

($4,500+$2,500)

(Being gain on option realzied and transferred to statement of comprehensive income)

b. Calculation for What is the overall impact

Impact on net income in 2020 = $4,000 - 1,500 = $2,500

Impact on net income in 2021 = $6,000 - $1,500 = $4,500

You might be interested in
What is an example of an inflation risk?
ale4655 [162]
The price of an item can rise or fall
5 0
3 years ago
Read 2 more answers
Choose all that apply.
Dima020 [189]

1.tracking your spending 2.avoiding impulse purchases 3.using credit cards infrequently

4 0
3 years ago
Read 2 more answers
In which phase of the job search cycle will you write a thank-you letter to the company following your interview?
ikadub [295]

Answer:

c. Shine at Interviews

Explanation:

We write a thank-you letter to the company after shine at Interviews in order to follow up

6 0
3 years ago
The following summarized data (amounts in millions) are taken from the September 27, 2014, and September 28, 2013, comparative f
Anarel [89]

Answer:

Apple Inc.

a. Calculate Apple Inc.'s working capital, current ratio, and acid-test ratio at September 27, 2014, and September 28, 2013. (Round your ratio answers to 1 decimal place. Enter "Working capital" in million of dollars.)

September 2014:

a) Working Capital = Current Assets - Current Liabilities

= $45,660,000 - $34,978,000 = $10,682,000

b) Current Ratio = Current Assets / Current Liabilities

= $45,660 / $34,978 = 1.3 : 1

c) Acid-Test Ratio = Current Assets - Inventory / Current Liabilities

= $45,660 - 930 / $34,978 = 1.3 : 1

September 2013:

a) Working Capital = Current Assets - Current Liabilities

= $41,940,000 - $21,160,000 = $20,780,000

b) Current Ratio  = Current Assets / Current Liabilities

= $41,940 / $21,160 = 2 : 1

c) Acid-Test Ratio Current Assets - Inventory / Current Liabilities

= $41,940 -1,200 / $21,160 = 1.9 : 1

b. Calculate Apple's ROE for the years ended September 27, 2014, and September 28, 2013. (Round your answers to 1 decimal place.)

September 2014

ROE = Net Income/Equity x 100 = $26,050/$77,290 x 100 = 33.7%

September 2013

ROE = Net Income/Equity x 100 = $14,160/$48,050 x 100 = 29.5%

c. Calculate Apple's ROI, showing margin and turnover, for the years ended September 27, 2014, and September 28, 2013. (Round "Turnover" answers to 2 decimal places. Round your percentage answers to 1 decimal place.)

September 2014

ROI = Margin x Turnover = Net Operating Income/Sales x Sales/Average Assets

= ($33,950/$108,400) x ($108,400/$120,880)

= 0.31 x 0.90

= 0.279 = 27.9%

Average Assets = $120,880 ($147,820 + 93,940) /2

September 2013

ROI = margin = turnover = Net Operating Income/Sales x Sales/Average Assets

= ($18,530/$65,370) x ($65,370/$70,880)

= 0.28 x 0.92

= 0.258 = 25.8%

Average Assets = $70,880 ($93,940 + 47,820) /2

Explanation:

<h3>Apple Inc. </h3><h3>Income Statement</h3>

For the Fiscal Years Ended September 27 and September 28, respectively:

                                                             2014                2013

Net sales                                           $108,400            $65,370

Costs of sales                                      64,580              39,690

Operating income                               33,950               18,530

Net income                                       $26,050              $14,160

Balance Sheet:

Assets

Current assets:

Cash and cash equivalents                                            $9,580      $10,630

Short-term marketable securities                                   16,280         14,510

Accounts receivable, less allowances of $84 & $99     5,520          5,670

Inventories                                                                           930           1,200

Deferred tax assets                                                          2,170            1,780

Vendor non-trade receivables                                       6,500           4,560

Other current assets                                                      4,680           3,590

Total current assets                                                     45,660          41,940

Long-term marketable securities                               85,770          25,540

Property, plant, and equipment, net                            7,930          22,670

Goodwill                                                                         1,060               890

Acquired intangible assets, net                                   3,690               490

Other assets                                                                  3,710              2,410

Total assets                                                             $147,820        $93,940

Liabilities and Shareholders Equity

Current liabilities:

Accounts payable                                                     $14,780          $12,160

Accrued expenses                                                      9,400             5,870

Deferred revenue                                                       4,250              3,130

Commercial paper                                                      6,548             0

Total current liabilities                                              34,978             21,160

Deferred revenue: noncurrent                                   1,840              1,290

Long-term debt                                                        23,452            17,760

Other noncurrent liabilities                                      10,260             5,680

Total liabilities                                                          70,530           45,890

Shareholders' Equity:

Common stock and additional paid-in capital,$0.00001

par value, 1,900,000 shares authorized; 929,430 & 916,130

shares issued & outstanding, respectively            13,490             10,810

Retained earnings                                                  63,200           37,320

Accumulated other comprehensive income (loss)    600                (-80)

Total shareholders' equity                                     77,290           48,050

Total liabilities & shareholders' equity              $147,820        $ 93,940

At September 29, 2012, total assets were $47,820 and total shareholders' equity was $31,800.

b) Working Capital is the excess of current assets over current liabilities.  It shows the amount of finance needed for meeting day-to-day operations of an entity.  Working capital measures a company's liquidity, operational efficiency, and its short-term financial health.  A healthy entity has some excess of current assets over current liabilities in order to continue to run the business operations in the short-run.  Working capital can also be measured in relative terms with the use of ratios, especially the current ratio and the acid-test ratio.

c) ROE means Return on equity.  It is a financial performance measure calculated by dividing net income by shareholders' equity.   Since shareholders' equity is equal to a company's assets minus its debt, ROE is considered as the return on net assets.  As with return on capital, a ROE measures management's ability to generate income from the equity available to it.

d) Return on Investment (ROI) is a financial performance measure which evaluates the efficiency of an investment or compares the efficiency of a number of different investments.  ROI tries to directly measure the amount of return on a particular investment, relative to the investment's cost.  As a financial metric, it measures the probability of gaining a return from an investment.

6 0
3 years ago
A decrease in the supply of dollars on the foreign exchange market, all else equal, will result in:
Maurinko [17]

Answer:

a. appreciation of the U.S. dollar and depreciation of the foreign currency.

Explanation:

When the supply of us dollars fall, demand for US dollars would be greeter than the supply, the value of the US dollar would rise.

I hope my answer helps you

8 0
2 years ago
Other questions:
  • The cost of land does not include:
    6·1 answer
  • "Much of the information that allows decision makers to run their organizations effectively in the digital age comes to them in
    5·2 answers
  • A bank statement:
    15·1 answer
  • During the year, Pablo keeps the following record of his travel: Miles Home to office 864 Office to home 864 Home to local clien
    5·2 answers
  • You are asked to send out an important letter to your business associates in Japan, and it must be sent within the next 90 minut
    7·1 answer
  • According to the IASB Framework for the Preparation and Presentation of Financial Statements, the qualitative characteristic of
    13·1 answer
  • Smileline Inc. has an onsite daycare facility and provides employees fulltime daycare at a very low cost. The company implemente
    14·1 answer
  • Question 12
    10·1 answer
  • How do interest and fees impact your credit purchase
    5·1 answer
  • Assuming that all occupied blocks need to be moved, how long will it take to compact the memory
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!