Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 $0.08 per Swedish krona, Pimlico enters into a forward contract to purchase 627,000 Swedish kroner at a three-month forward rate of $0.098. At the end of three months, when the spot rate is $0.095 per Swedish krona, Pimlico orders and receives the merchandise, paying 627,000 kroner. What amount does Pimlico report in net income as a result of this cash flow hedge of a forecasted transaction?

a. $11,286 Discount Expense plus a $7,524 positive Adjustment to Net Income when the merchandise is purchased.
b. $1,881 Premium Expense plus a $1,881 positive Adjustment to Net Income when the merchandise is purchased.

c. $1,881 Premium Expense plus a $7,524 negative Adjustment to Net Income when the merchandise is purchased.
d. $11,286 Premium Expense plus a $9,405 positive Adjustment to Net Income when the merchandise is purchased.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Effectiveness Analysis Methods And Applications

Authors: Henry M. Levin, Patrick J. McEwan

2nd Edition

0761919333, 978-0761919339

More Books

Students also viewed these Accounting questions