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The Louisville Slugger Company is a U . S . - based manufacturer and exporter of wood baseball bats. On November 1 , Year 1
The Louisville Slugger Company is a USbased manufacturer and exporter of wood baseball bats. On November Year Louisville sold and shipped baseball bats to an overseas customer for a price totaling Foreign Currency Units FCUs Payment is to be received on April Year
The Treasurer is concerned that the FCU will weaken during this period. Accordingly, on the date of sale, Louisville entered into a sixmonth forward contract with TD Bank to sell FCUs. The forward contract is properly designated as a cash flow hedge of a foreign currency receivable. Louisvilles incremental borrowing rate is The present value factor for fourmonths at a borrowing rate of percent percent per month is Relevant exchange rates are as follows:
Spot Forward Rate
Date Rate to April Year
November Year $ $
December Year
April Year
The company is required to formally document the hedging transaction at the time the forward contract is entered into. In general, what information is to be included in order to satisfy the hedge documentation requirements?
Prepare all necessary journal entries to account for the sale and foreign currency forward contract. Assume that Louisville closes the books and prepares financial statements on December Year
Where appropriate, round to decimal points.
Based upon your work in No above, what is the impact on net income for each year, and in total, due to the foreign currency aspects of this transaction?
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