Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 18,000 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 18,000 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 $ 3.60 $ 3.675 December 31, 2020 3.70 3.800 March 1, 2021 3.85 N/A a-2. What is the impact on 2020 net income? a-3. What is the impact on 2021 net income? a-4. What is the impact on net income over the two accounting periods?
Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 18,000 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 18,000 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 $ 3.60 $ 3.675 December 31, 2020 3.70 3.800 March 1, 2021 3.85 N/A a-2. What is the impact on 2020 net income? a-3. What is the impact on 2021 net income? a-4. What is the impact on net income over the two accounting periods?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 18,000 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 18,000 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 | $ | 3.60 | $ | 3.675 | ||
| December 31, 2020 | 3.70 | 3.800 | ||||
| March 1, 2021 | 3.85 | N/A | ||||
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a-2. What is the impact on 2020 net income?
-
a-3. What is the impact on 2021 net income?
-
a-4. What is the impact on net income over the two accounting periods?
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