Answered step by step
Verified Expert Solution
Question
1 Approved Answer
1. ABC Company located in Norman, OK sells inventory to DEF Company located in Cabo San Lucas Mexico on December 1, 2017 for 100,000 pesos
1. ABC Company located in Norman, OK sells inventory to DEF Company located in Cabo San Lucas Mexico on December 1, 2017 for 100,000 pesos to be received on January 31, 2018. ABC Company enters into a forward contract on December 1, 2017 to sell 100,000 pesos on January 31, 2018. Relevant exchange rates for the pesos on various dates are as follows: Date Spot Rate Forward Rate (to January 31, 2018) December 1, 2017 .061 .060 December 31, 2017 .052 .062 January 31, 2018 .057 n/a ABC Company's incremental borrowing rate is 12%. Present value factor for 1 period at 12% is .9901. Assume that ABC Company must close its books and prepare financial statements on December 31. A.1 Assume that ABC Company designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in US Dollars. A.2 What is the impact on 2017 net income? A.3 What is the impact on 2018 net income? B1. Assume that ABC Company designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in US Dollars. B.2 What is the impact on 2017 net income? B.3 What is the impact on 2018 net income
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started