Advance Accounting Chapter 14 Partnerships Formation and Operation Example 7: Forward Contract Used as Fair Value Hedge of a Firm Commitment Forward Contract Firm Commitment Forward Rate Fair Value Change in Fair Value Change in Fair Value Date Fair Value s 0 S 1.305 1.316 s 0 (10,783) 10,783 +15,783 -5,000 1231/17 10.783 1.30 spot rate 5,000 15,783 Assume that on December 1, 2017, Amerco recenves and accepts an order from a German customer to deliver goods on March 1, 2018, at a price of 1 million euros. Amexco will ship the goods to the German customer on March 1, 2018, and will receive immediate payment on delivery Amexco incremental borrowing rate is 12 percent per year Forward Contract Used as Fair Value Hedge of a Firm Commitment