Hi$.$ I don't understand why the COGS "must" be the amortized forward points?How do we know that? I can't find an explanation in the book at all.

$1$

Premium

$2$

$$1\mathrm{.}09$

$3$

$$1\mathrm{.}11$

$4$

$$103,000$

Explanation:

The amount recognized as Cost of Goods Sold on March $31$ must be the current quarter$$s amortization of forward points. Because COGS has a debit balance, net income has been reduced. A forward contract premium results in an increase in COGS, thus the Swiss franc must have sold at a premium on February $20$ in the three$-$month forward market.Question

Answer

$1$

Premium

$2$

$$1\mathrm{.}09$

$3$

$$1.$

Explanation

The amount recognized as Cost of Goods Sold on March $31$ must be the currentamortization of forward points. Because COGS has a debit balance, net income has been reduced. A forward contract premium results in an increase in COGS, thus the Swiss franc must have sold at a premium on February $20$ in the three$-$month forward market.