Question
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. |
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