Lion Corporation, a U $$\begin{array} { l c c } & \text { Spot } & \text { Forward } \\\hline 6 / 1 & \$ 0.53 & \$ 0.60 \\6 / 30 & \$ 0.54 & \$ 0.58\end{array}$$

Essay

Lion Corporation, a U.S.firm, entered into several foreign currency transactions during the year.Determine the effect of each transaction on net income for that current accounting year only.Lion has a June 30 year end.
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Required:
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a.On January 15, Lion sold $30,000 (Canadian) in merchandise to a Canadian firm, to be paid for on February 15 in Canadian dollars.Canadian dollars were worth $0.85 (U.S.) on January 15 and $0.82 (U.S.) on February 15.?
b.On June 1, Lion purchased and received a computer costing 100,000 euros from a German firm.Lion paid for the computer on August 1.On June 1, to reduce exchange risks, Lion purchased a contract to buy 100,000 marks in 60 days.Exchange rates are as follows:
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$$\begin{array} { l c c } & \text { Spot } & \text { Forward } \\\hline 6 / 1 & \$ 0.53 & \$ 0.60 \\6 / 30 & \$ 0.54 & \$ 0.58\end{array}$$ Discount rate = 6%
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c.On June 1, Lion sold merchandise to a customer for 100,000 FC and purchased an option to sell 100,000 FC in 60 days to hedge the receivable.The option sold for a premium of $6,500 and a strike price of $1.20.The value of the option 6/30 was $12,500.The spot rate on June 1 was $1.19 and $1.25 on June 30.