Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with payment of 10,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on December 1, 2020, to sell 10,000 dinars on March 1, 2021. The forward points on the forward contract are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows:

Date	Spot Rate			Forward Rate (to March 1, 2021)
December 1, 2020	$	2.80		$	2.875
December 31, 2020		2.90			3.000
March 1, 2021		3.05			N/A

Icebreaker must close its books and prepare financial statements at December 31.

a-1. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars.

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 net income over the two accounting periods?

b-1. Assuming that Icebreaker designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars.

b-2. What is the impact on 2020 net income?

b-3. What is the impact on 2021 net income?

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

For a-1 / Journal

1

Record the sales and foreign currency account receivable.

2

Record the forward contract.

3

Record the entry to revalue the foreign currency account receivable.

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 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 amortization of the forward contract premium or discount.

11

Record the receipt of dinars from the foreign customer.

12

Record the settlement of the forward contract

For b-1/ Journal

Record the sales and foreign currency account receivable.

2

Record the forward contract.

3

Record the entry to revalue the foreign currency account receivable.

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 allocation of the 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 contract.

9

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

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 receipt of dinars from the foreign customer.

12

Record the settlement of the forward contract.