Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with payment of 16,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on December 1, 2020, to sell 16,000 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 December 1, 2020 December 31, 2020 March 1, 2021 Spot Rate $ 2.70 2.80 2.95 Forward Rate (to March 1, 2021) $ 2.775 2.900 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? 1 12/01/2020 Accounts receivable (dinars) Sales 2 12/01/2020 No journal entry required 3 12/31/2020 Accounts receivable (dinars) Foreign exchange gain or loss 4 12/31/2020 Other comprehensive income Forward contract 5 12/31/2020 Foreign exchange gain or loss Other comprehensive income 6 12/31/2020 Other comprehensive income Foreign exchange gain or loss 7 03/01/2021 Accounts receivable (dinars) Foreign exchange gain or loss 8 03/01/2021 Other comprehensive income Forward contract 9 03/01/2021 Foreign exchange gain or loss Other comprehensive income 10 03/01/2021 Other comprehensive income Foreign exchange gain or loss 11 03/01/2021 Foreign currency (dinars) Accounts receivable (dinars) 12 03/01/2021 Forward contract Cash 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? (Do not round intermediate calculations. Negative amounts should be entered with a minus sign.) a-2. Impact on 2020 net income a-3. Impact on 2021 net income a-4. Impact on net income over 2020 and 2021 1 12/01/2020 Accounts receivable (dinars) Sales 2 12/01/2020 No journal entry required 3 12/31/2020 Accounts receivable (dinars) Foreign exchange gain or loss 4 12/31/2020 Foreign exchange gain or loss Forward contract 5 12/31/2020 No journal entry required 6 12/31/2020 Other comprehensive income Foreign exchange gain or loss 7 03/01/2021 Accounts receivable (dinars) Foreign exchange gain or loss 8 03/01/2021 Foreign exchange gain or loss Forward contract 9 03/01/2021 No journal entry required 10 03/01/2021 Accumulated other comprehensive income Foreign exchange gain or loss 11 03/01/2021 Foreign currency (dinars) Accounts receivable (dinars) 12 03/01/2021 Forward contract Cash 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? (Do not round intermediate calculations. Negative amounts should be entered with a minus sign.) b-2 b-3 Impact on 2020 net income Impact on 2021 net income Impact on net income over 2020 and 2021 b-4
