Question
2. A1 Corp, a U.S. company, purchased equipment from a Mexican firm for Mex$1,000,000 to be paid in 3 months. The spot rate at the
2. A1 Corp, a U.S. company, purchased equipment from a Mexican firm for Mex$1,000,000 to be paid in 3 months. The spot rate at the time of purchase is $0.06 per Mex$. A1 can hedge the FX risk associated with this transaction using which of the following derivative transactions:
I. Enter into a forward contract to sell Mex$1,000,000
II. Enter into a forward contract to buy Mex$1,000,000
III. Enter into a forward contract to buy US$60,000
A. Only I
B. Only II
C. I and III
D. II and III
3. Porcelanosa Grupo has a noncontributory, defined benefit pension plan. The company provided the following information regarding its pension accounts for the fiscal year ended on December 31, 2015.
| $ in millions |
PBO Balance, January 1 | $590 |
Service cost | 70 |
Prior service cost | 27 |
Plan Assets Balance, January 1 | 500 |
Actual return on plan assets | 18 |
There were no OCI balances related to pensions on January 1, 2015. At the end of 2015, Porcelanosa amended the pension formula creating a prior service cost of $27 million.
Porcelanosa prepares its financial statements according to IFRS. The interest rate on high quality corporate bonds is 4%.
a. Determine the net pension cost for 2015.
b. Prepare the journal entry to record Porcelanosas pension expense, gains or losses, and prior service cost.
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