Forward Rate (to March 1, 2018) $2.775 Spot Rate Date $2.70 December 1, 2017 December 31, 2017 March 1, 2018 2.80 2.95 2.900 N/A
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 16,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 16,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:
Brandlin’s incremental borrowing rate is 12 percent. The present value factor for two months at an 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.
a. Assuming that Brandlin designates the forward contract as a
b. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. What is the impact on 2017 net income? What is the impact on 2018 net income? What is the impact on net income over the two accounting periods?
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