Question
On December 1, Year 1, Tackett Company (a U.S.-based company) entered into a three-month forward contract to purchase 1 million Mexican pesos on March 1,
On December 1, Year 1, Tackett Company (a U.S.-based company) entered into a three-month forward contract to purchase 1 million Mexican pesos on March 1, Year 2. The following U.S. dollarpeso exchange rates apply: Date Spot Rate Forward Rate (to March 1, Year 2) December 1, Year 1 $ 0.088 $ 0.084 December 31, Year 1 0.080 0.074 March 1, Year 2 0.076 Tacketts 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 Tackett Company will report the forward contract on its December 31, Year 1, balance sheet?
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