On December 1, 2017, Ringling Company (a U.S.-based company) entered into a three-month forward contract to purchase 1,110,000 pesos on March 1, 2018. The following U.S. dollar per peso exchange rates apply: Date Spot Rate Forward Rate (to March 1, 2018) December 1, 2017 $ 0.022 $ 0.025 December 31, 2017 0.024 0.027 March 1, 2018 0.028 N/A Ringling's incremental borrowing rate is 14 percent. The present value factor for two months at an annual interest rate of 14 percent (1 percent per month) is 0.9771. Which of the following correctly describes the manner in which Ringling Company will report the forward contract on its December 31, 2017, balance sheet? Multiple Choice

As a liability in the amount of $3,254.

As an asset in the amount of $2,169.

As a liability in the amount of $1,085.

As an asset in the amount of $3,254.

On March 1, Pimlico Corporation (a U.S.-based company) expects to order merchandise from a supplier in Sweden in three months. On March 1, when the spot rate is $0.44 per Swedish krona, Pimlico enters into a forward contract to purchase 695,000 Swedish kroner at a three-month forward rate of $0.460. At the end of three months, when the spot rate is $0.455 per Swedish krona, Pimlico orders and receives the merchandise, paying 695,000 kroner. What amount does Pimlico report in net income as a result of this cash flow hedge of a forecasted transaction?

Multiple Choice

• $13,900 Discount expense plus a $6,950 positive adjustment to net income when the merchandise is purchased.

• $3,475 premium expense plus a $6,950 negative adjustment to net income when the merchandise is purchased.

• $3,475 premium expense plus a $3,475 positive adjustment to net income when the merchandise is purchased.

• $13,900 premium expense plus a $10,425 positive adjustment to net income when the merchandise is purchased.