Question
On December 1, 2015, Barnum Company (a U.S.based company) entered into a three-month forward contract to purchase 1,330,000 ringgits on March 1, 2016. The following
On December 1, 2015, Barnum Company (a U.S.based company) entered into a three-month forward contract to purchase 1,330,000 ringgits on March 1, 2016. The following U.S. dollar per ringgit exchange rates apply: |
Date | Spot Rate | Forward Rate (to March 1, 2016) |
December 1, 2015 | $ 0.173 | $0.170 |
December 31, 2015 | 0.167 | 0.164 |
March 1, 2016 | 0.166 | N/A |
Barnums incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. |
Which of the following correctly describes the manner in which Barnum Company will report the forward contract on its December 31, 2015, balance sheet? |
a. As an asset in the amount of $5,215.20
b. As a liability in the amount of $7,822.79.
c. As an asset in the amount of $3,911.40.
d. As a liability in the amount of $11,734.19.
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