Problem 9-31 (Algo) (LO 9-7) Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with payment of 18,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on December 1, 2020, to sell 18,000 dinars on March 1, 2021. The forward points on the forward contract are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows: Date December 1, 2020 December 31, 2020 March 1, 2021 Spot Rate $ 3.60 3.70 3.85 Forward Rate (to March 1, 2021) $ 3.675 3.800 N/A Icebreaker must close its books and prepare financial statements at December 31. Icebreaker must close its books and prepare financial statements at December 31. a-1. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars. a-2. What is the impact on 2020 net income? a-3. What is the impact on 2021 net income? a-4. What is the impact on net income over the two accounting periods? b-1. Assuming that Icebreaker designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars. b-2. What is the impact on 2020 net income? b-3. What is the impact on 2021 net income? b-4. What is the impact on net income over the two accounting periods? 1 2 3 4 5 6 7 8 12 Record the sales and foreign currency account receivable. Note: Enter debits before credits. Date General Journal Debit Credit 12/01/2020 Record entry Clear entry View general journal Journal entry worksheet Record the forward contract. Note: Enter debits before credits. Date General Journal Debit Credit 12/01/2020 Record entry Clear entry View general journal Juullal en Y VUI KSITEEL Record the change in the fair value of the forward contract. Note: Enter debits before credits. Date General Journal Debit Credit 12/31/2020 Record entry Clear entry View general journal Juunlar En Y VUI KSITEEL Record the foreign exchange gain or loss on the forward contract. Note: Enter debits before credits. Date General Journal Debit Credit 12/31/2020 Record entry Clear entry View general journal 1 2 3 4 5 6 7 8 12 Record the amortization of the forward contract premium or discount. Note: Enter debits before credits. Date General Journal Debit Credit 12/31/2020 Record entry Clear entry View general journal Journal en YwOT Ksieel Record the entry to adjust the carrying value of the forward contract to its current fair value. Note: Enter debits before credits. Date General Journal Debit Credit 03/01/2021 Record entry Clear entry View general journal Juunilal EML Y VUI Kiteel Record the foreign exchange gain or loss on the forward contract. Note: Enter debits before credits. Date General Journal Debit Credit 03/01/2021 Record entry Clear entry View general journal Juunlar En Y VUI KSITEEL Record the receipt of dinars from the foreign customer. Note: Enter debits before credits. Date General Journal Debit Credit 03/01/2021 Record entry Clear entry View general journal JUMILIGI CHU Y VUI SIIeet
