17

On October 15, 2018, Margo Corporation, a U.S. based company, sells to a retailer located in Austria 12,000 units of a product at a sales price of 55 per unit, and we require payment in Euros (). The exchange rate on the date of sale is $1.29:1, and the due date for payment is January 15, 2019. To mitigate the risk of exchange rate fluctuations between the sale date and the collection date, on October 15, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to deliver 660,000 on January 15, 2019, while we lock in the $US we will receive on that date at the forward rate of $1.33:1 (i.e., the forward rate on October 15, 2018 for settlement on January 15, 2019). Assume this derivative qualifies as a fair value hedge, and our companys functional currency and reporting currency is the $US. The following table includes the spot rates, forward rates, and related values of the accounts receivable and forward contract on October 15, 2018, December 31, 2018, and January 15, 2019. When computing fair values, ignore discounting.

		FC Accounts Receivable			DerivativeForward
Date	Spot Rate ($US = 1)	Carrying Value	Change in Carry Val.	Forward Ratea ($US = 1)	FV Asset (Liability)b	Change in FV
October 15, 2018	1.29	$851,400		1.33
December 31, 2018	1.40	924,000	$72,600	1.41	$(52,800)	$(52,800)
January 15, 2019	1.44	950,400	26,400	1.44	(72,600)	(19,800)

^a For settlement on January 15, 2019

^b Ignore discounting in the computation of fair values.

1. What is the Net cash received from settlement of the receivable and forward-contract derivative?

2. What amount of sales was recognized in the quarter ending December 31, 2018?

3. What amount Forward Contract Asset (Liability) will be on our balance sheet for the quarter ending December 31, 2018? Asset or Liability?

4. What amount of sales was recognized in the quarter ending March 31, 2019?