Question
Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 29,000 dinars to be made on March
Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 29,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 29,000 dinars on March 1, 2021.
Relevant exchange rates for the dinar on various dates are as follows:
| Date | Spot Rate | Forward Rate (to March 1, 2021) | ||||
| December 1, 2020 | $ | 4.70 | $ | 4.775 | ||
| December 31, 2020 | 4.80 | 4.900 | ||||
| March 1, 2021 | 4.95 | N/A | ||||
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What is the impact on net income in 2020 and in 2021?
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What is the impact on net income over the two accounting periods?
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