Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik

Exercise 43

The Pier Ten Company, a U.S. company, made credit sales to four customers in Asia on December 15, 2010, and received payment on January 15, 2011. Information related to these sales is as follows:

The Pier Ten Company's fiscal year ends December 31.
Required
1) Use historical exchange rate information available on the Internet at www.x-rates.com, Historical Lookup, to find exchange rates between the U.S. dollar and each foreign currency for December 14, 2010, December 31, 2010, and January 14, 2011.
2) Determine the foreign exchange gains and losses that Pier Ten would have recognized in net income in 2010 and 2011, and the overall foreign exchange gain or loss for each transaction.
Determine for which transaction it would have been most important for Pier Ten to hedge its foreign exchange risk.
3) Pier Ten could have acquired a one-month put option on December 15, 2010, to hedge the foreign exchange risk associated with each of the four export sales. In each case, the put option would have cost $100 with the strike price equal to the December 15, 2010, spot rate. Determine for which hedges, if any, Pier Ten would have recognized a net gain on the foreign currency option.