Problem 3: Uragon Company sold warehouse facilities for $8,340,000 to a customer in Oregon, USA on Nov 2, 2020. Collection in US dollars was due on Jan 31, 2021. On the same date, to hedge this foreign currency exposure, Uragon Company entered into a forward contract to sell $8,340,000 to Export bank for delivery on Jan 31, 2021. Indirect exchange rates on different dates were as follows:

Nov 2 Dec 31 Jan 31

Spot rate .02387 .02457 .02494

30-day futures .02364 .02475 .02278

60-day futures .02392 .02481 .02437

90-day futures .02463 .02403 .02304

1. How much is the effect on earnings due to hedged item in the Dec 31, 2020 profit and loss statement?

a. (10,008,000)

b. (5,838)

c. 10,008,000

d. 5,838

1. How much is the effect on earnings due to hedging instrument in the 2021 profit and loss statement?

a. 2,502,000

b. 1,585

c. (2,502,000)

d. (1,585)

Problem 4: Barako Company acquired a heavy equipment for $14,100 from a supplier in Detroit, USA on Dec 1,2020. Payment in US Dollars was due on March 31,2021. Direct exchange rates for dollars on different dates were as follows:

Spot Rates BID OFFER

Dec 1, 2020 41.6 41.4

Dec 31, 2020 42.5 42.3

Mar 31, 2021 43.4 43.7

Forward Rates Dec 1 Dec 31 Mar 31

30-day futures 42.3 41.8 43.2

60-day futures 41.8 42.2 42.6

90-day futures 40.6 42.5 43.4

120-day futures 42.2 42.8 42.9

1. What is the reported value of the liability to the vendor at Dec 31, 2020?

a. 596,430

b. 599,250

c. 596,400

d. 599,200

1. What is the net impact in Barako Company's income in 2020 as a result of this hedging activity?

a. 8,460 net gain

b. 8,460 net loss

c. 8,500 net gain

d. 8,500 net loss