Question
On November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 310,000 FCUs with payment to be received on April
On November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 310,000 FCUs with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 310,000 FCUs. The company properly designates the forward contract as a cash flow hedge of a foreign currency receivable. The following exchange rates apply:
Date | Spot Rate | Forward Rate (to April 30, 2018) | ||||
November 1, 2017 | $ | 0.42 | $ | 0.41 | ||
December 31, 2017 | 0.40 | 0.38 | ||||
April 30, 2018 | 0.39 | N/A | ||||
Bernard's incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610.
- Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract.
- What is the impact on net income in 2017?
- What is the impact on net income in 2018?
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