Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 107,000 pounds,with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.27 per pound, Shandra purchases atwo-month call option on 107,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currencytransaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value isrecognized in net income over the life of the option. The option has a strike price of $1.27 per pound and costs $1,070. Thegoods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spotrate for pounds is $1.320 on June 15,Required:a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge.a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter ending June 30?b. What amount should Shandra Corporation report in net income as foreign exchange gain or loss for the quarter endingJune 30?Answer is not complete.Complete this question by entering your answers in the tabs below.Req BPrepare all journal entries for Shandra Corporation related to this transaction and hedge.Note: If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.Req A1Reg A2

Forex Hedging is a common financial practice that is used to avert the foreign exchange risk…

Answered: Shandra Corporation (a U

Business

Accounting

Shandra Corporation (a U

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 121,000 pounds, with delivery and payment to be made on April 20. On February 20, when the spot rate is $1.41 per pound, Shandra purchases a two-month call option on 121,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.41 per pound and costs $1,210. The goods are received and paid for on April 20. Shandra sells the imported goods in the local market by May 31. The spot rate for pounds is $1.46 on April 20. What amount will Shandra Corporation report as foreign exchange gain or loss in net income for the quarter ended June 30?
Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 106,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 106,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.35 per pound and costs $1,060. The spot rate for pounds is $1.35 on June 20 and $1.40 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30? Multiple Choice $530. $5,300. $2,300. $1,060.
Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 119,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.46 per pound, Shandra purchases a two-month call option on 119,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.46 per pound and costs $1,190. The goods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spot rate for pounds is $1.510 on June 15. Required: a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge. a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter ending June 30? b. What amount…
Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.25 per pound and costs $600. The spot rate for pounds is $1.25 on June 20 and $1.30 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30?a. $300b. $600c. $2,000d. $5,000
Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.25 per pound and costs $600. The spot rate for pounds is $1.25 on June 20 and $1.30 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30? Choose the correct.a. $300b. $600c. $2,000d. $5,000
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A Malaysian company expects to have to pay 1 million Canadian dollars in six months. Explain how the exchange rate risk can be hedged using (a) a forward contract (b) an option.
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