On December 12, 2016, Car entered into three forward exchange contracts, each to purchase 100,000 Canadian dollars
Question:
On December 12, 2016, Car entered into three forward exchange contracts, each to purchase 100,000 Canadian dollars in 90 days. Assume a 12 percent interest rate. The relevant exchange rates are as follows:
1. Car entered into the first forward contract to hedge a purchase of inventory in November 2016, payable in March 2017. At December 31, 2016, what amount of foreign currency transaction gain should Car include in income from this forward contract? Explain.
2. Car entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Car's specifications. At December 31, 2016, what amount of net gain or loss on foreign currency transactions should Car include in income from this forward contract? Explain.
3. Car entered into a third forward contract for speculation. At December 31, 2016, what amount of foreign currency transaction gain should Car include in income from this forward contract? Explain.
Step by Step Answer:
Advanced Accounting
ISBN: 978-0134472140
13th edition
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith