Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 19,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 19,000 dinars on March 1, 2021.Relevant exchange rates for the dinar on various dates are as follows: DateSpot RateForward Rate(to March 1, 2021)December 1, 2020$3.70 $3.775 December 31, 2020 3.80 3.900 March 1, 2021 3.95 N/A b-1. Assuming that Icebreaker designates the forward contract as a fair value hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars. Record the purchase of materials. Record the forward contract. Record the entry to revalue the foreign currency account payable. Record the foreign exchange gain or loss on the forward contract. Record the foreign exchange gain or loss on the forward contract. Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount. Record the entry to revalue the foreign currency account receivable. Record the foreign exchange gain or loss on the forward contract. Record the settlement of the forward contract.Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount. Record the settlement of the forward contract. Record the payment of dinars to the foreign supplier.b-2. What is the impact on net income in 2020 and in 2021?b-3. What is the impact on net income over the two accounting periods?

The rate at which one country’s currency can be converted into another country’s currency referred…

Answered: Icebreaker Company (a U.S.-based…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 19,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 19,000 dinars on March 1, 2021.

Relevant exchange rates for the dinar on various dates are as follows:

Date	Spot Rate	Forward Rate (to March 1, 2021)
December 1, 2020	$	3.70	$	3.775
December 31, 2020		3.80		3.900
March 1, 2021		3.95		N/A

b-1. Assuming that Icebreaker designates the forward contract as a fair value hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars.

Record the purchase of materials.
Record the forward contract.
Record the entry to revalue the foreign currency account payable.
Record the foreign exchange gain or loss on the forward contract.
Record the foreign exchange gain or loss on the forward contract.
Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount.
Record the entry to revalue the foreign currency account receivable.
Record the foreign exchange gain or loss on the forward contract.
Record the settlement of the forward contract.
Record the entry to adjust the net amount recognized as foreign exchange gain or loss to reflect the amortization of the forward contract premium or discount.
Record the settlement of the forward contract.
Record the payment of dinars to the foreign supplier.

b-2. What is the impact on net income in 2020 and in 2021?

b-3. What is the impact on net income over the two accounting periods?

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