Question
On November 1, 2016, Lumberg sold inventory to a company in Mexico. The sale was for 600,000 Mexican peso's and payment will be received on
On November 1, 2016, Lumberg sold inventory to a company in Mexico. The sale was for 600,000 Mexican peso's and payment will be received on February 1, 2017. On November 1, Lumberg entered into a forward contract to sell 600,000 Mexican peso's on February 1 at the forward rate of $1.65. Spot rates for the Mexican Peso's are as follows:
November 1 $1.61
December 31 $1.67
February 1 $1.62
Lumberg has a December 31 fiscal year-end.
Required:
Compute each of the following:
1. The dollars to be received on February 1, 2017, from selling the 600,000 pesos to the exchange dealer.
2. The dollars that would have been received from the account receivable if Lumberg had not hedged the sale contract with the forward contract.
3. The discount or premium on the forward contract.
4. The transaction gain or loss on the exposed asset related to the sale in 2016 and 2017.
5. The transaction gain or loss on the forward contract in 2016 and 2017.
6. The amount of the discount or premium on the forward contract amortized in 2016 and 2017.
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