bo5-6

Forward exchange contract designated as a fair value hedge of a foreign-currency-denominated accounts receivable, weakening $US

On October 15, 2018, our company sells to a retailer located in Austria 12,000 units of a product at a sales price of 50 per unit, and we require payment in Euros (). The exchange rate on the date of sale is $1.28:1, 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 600,000 on January 15, 2019, while we lock in the $US we will receive on that date at the forward rate of $1.32:1 (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	1.28	$768,000		1.32
December 31, 2018	1.39	834,000	$66,000	1.40	$(48,000)	$(48,000)
January 15, 2019	1.43	858,000	24,000	1.43	(66,000)	(18,000)

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

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

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What is the total amount of sales recognized across the quarters ending December 31, 2018, and March 31, 2019?

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