Icebreaker Company (a U.S.-based company) purchased materials from a foreign supplier on December 1, 2020, with payment of 23,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as COGS at the date of purchase. On December 1, 2020, Icebreaker entered into a forward contract to purchase 23,000dinars on March 1, 2021. Relevant exchange rates for the dinar on various dates are as follows:

Date Sport Rate Forward Rate (to Mar-1, 2021)

12-1-2020 4.10 4,175

12-31-2020 4.20 4,300

03-01-2021 4.35 N/A

1. a-1. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency is payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars.
2. a-2. What is the impact on 2020 net income?
3. a-3. What is the impact on 2021 net income?
4. a-4. What is the impact on net income over the two accounting periods?
5. b-1. Assuming that Icebreaker designates the forward contract as a fair value hedge of a foreign currency is payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars.
6. b-2. What is the impact on net income in 2020 and in 2021?
7. b-3. What is the impact on net income over the two accounting periods?

REC A-1

1. Record the purchase of materials.

2. Record the forward contract.

3. Record the entry to revalue the foreign currency account payable.

4. Record the change in the fair value of the forward contract.

5. Record the foreign exchange gain or loss on the forward contract.

6. Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount.

7. Record the entry to revalue the foreign currency account receivable.

8. Record the entry to adjust the carrying value of the forward contract to its current fair value.

9. Record the foreign exchange gain or loss on the forward contract.

10. Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount.

11. Record the settlement of the forward contract.

12. Record the payment of dinars to the foreign supplier.

REC A2-A4 Questions

A-2 What is the impact on 2020 net income?

A-3 What is the impact on 2021 net income?

A-4 What is the impact on the net income over the two accounting periods?

REC B1 Questions

1. Record the purchase of materials.

2. Record the forward contract.

3. Record the entry to revalue the foreign currency account payable.

4. Record the foreign exchange gain or loss on the forward contract.

5. Record the foreign exchange gain or loss on the forward contract.

6. Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount.

7. Record the entry to revalue the foreign currency account receivable.

8. Record the foreign exchange gain or loss on the forward.

9. Record the settlement of the forward contract.

10. Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount. 11. Record the settlement of the forward contract.

12. Record the payment of dinars to the foreign supplier.

REC B2-B3

B2. What is the impact on net income in 2020 and in 2021?

B3. What is the impact on net income over the two accounting periods?