A. $295.05 (loss).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Accounting
Car Corp. (a U.S.-based company) sold parts to a Japanese customer on
December 1, 2020, with payment of 10 million Japanese yen to be received on
January 31, 2021. The following exchange rates applied:
Date
Spot rate
Forward rate to 01/31/21
0.00090
0.00093
0.00092
0.00098
0.00095
December 1, 2020
December 31, 2020
January 31, 2021
Assuming a forward contract was entered into, what would be the net impact
on Car Corp.'s 2020 income statement related to this foreign currency
transaction? Assume an annual interest rate of 12% and a fair value hedge. The
present value for one month at 12% is .9901.
A. $295.05 (loss).
B. $ 300 (gain).
C. $ 300 (loss).
D. $ 700 (gain).
E. $ 700 (loss).
0.00095
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