Brandlin company of anaheim, california, sells parts to a foreign customer on december 1, 2017, with payment of 24,000 korunas to be received on march 1, 2018. Brandlin enters into a forward contact on december 1, 2017 to sell 24,000 korunas on march 1, 2018. Relevant exchange rates for the korunas on various dates are as follow: date spot rate forward rate december 1, 2017 4.20 4.275 december 31, 2017 4.30 4.400 march 1, 2018 4.45 n/a brandli's incremental borrowing rate is 12 percent. The present value factor for two months at annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at december 31. 1. Assuming that brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight line method, prepare journal entries for those transactions in in U.S. dollars. 2. What is the impact on 2017 net income? 3. What is the impact on 2018 net income? 4. What is the impact on the net income over the two accounting periods?
Brandlin company of anaheim, california, sells parts to a foreign customer on december 1, 2017, with payment of 24,000 korunas to be received on march 1, 2018. Brandlin enters into a forward contact on december 1, 2017 to sell 24,000 korunas on march 1, 2018. Relevant exchange rates for the korunas on various dates are as follow:
date spot rate forward rate
december 1, 2017 4.20 4.275
december 31, 2017 4.30 4.400
march 1, 2018 4.45 n/a
brandli's incremental borrowing rate is 12 percent. The present value factor for two months at annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at december 31.
1. Assuming that brandlin designates the forward contract as a
2. What is the impact on 2017 net income?
3. What is the impact on 2018 net income?
4. What is the impact on the net income over the two accounting periods?
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