Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 14,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 14,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Forward Rate Spot Rate $ 3.20 (to March 1, 2018) $ 3.275 Date December 1, 2017 December 31, 2017 March 1, 2018 3.30 3.400 3.45 N/A Brandlin's incremental borrowing rate is 15 percent. The present value factor for two months at an annual interest rate of 15 percent (1.25 percent per month) is 0.9755. Brandlin must close its books and prepare financial statements at December 31. a-1. Assuming that Brandlin 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 U.S. dollars. a-2. What is the impact on 2017 net income? a-3. What is the impact on 2018 net income? a-4. What is the impact on net income over the two accounting periods? Assuming that Brandlin 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 U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to 2 decimal places.) 1 Record the sales and foreign currency account receivable. 2 Record the forward contract. 3 Record the entry for changes in the exchange rate. Record the change in the fair value of the forward contract. 5 Record the gain or loss on the forward contract. 6 Record the allocation of the premium or discount. Record the entry for changes in the exchange rate. 4) 8 Record the entry to adjust the carrying value of the forward contract to its current fair value. Record the gain or loss on the forward contract. 10 Record the allocation of the premium or discount. 11 Record the receipt of korunas from the foreign customer. 12 Record the settlement of the forward contract. a-2. What is the impact on 2017 net income? a-3. What is the impact on 2018 net income? a-4. What is the impact on net income over the two accounting periods? (Do not round intermediate calculations.) a- 2. a- Impact on 2017 net income Impact on 2018 net income 3. a- Impact on net income over 2017 and 2018 4
