Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 20 payment of 17,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contr December 1, 2020, to sell 17,000 dinars on March 1, 2021. The forward points on the forward con excluded in assessing hedge effectiveness and are amortized to net income using a straight-line on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows: Date December 1, 2020 December 31, 2020 March 1, 2021 Spot Rate $ Forward Rate (to March 1, 2021) 3.50 3.60 3.75 $ 3.575 3.700 N/A Icebreaker must close its books and prepare financial statements at December 31.
Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 20 payment of 17,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contr December 1, 2020, to sell 17,000 dinars on March 1, 2021. The forward points on the forward con excluded in assessing hedge effectiveness and are amortized to net income using a straight-line on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows: Date December 1, 2020 December 31, 2020 March 1, 2021 Spot Rate $ Forward Rate (to March 1, 2021) 3.50 3.60 3.75 $ 3.575 3.700 N/A Icebreaker must close its books and prepare financial statements at December 31.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with
payment of 17,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on
December 1, 2020, to sell 17,000 dinars on March 1, 2021. The forward points on the forward contract are
excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method
on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows:
Date
December 1,
2020
December 31,
2020
March 1, 2021
Spot
Rate
$
Forward Rate
(to March 1,
2021)
3.50
3.60
3.75
$ 3.575
3.700
a-2. What is the impact on 2020 net income?
a-3. What is the impact on 2021 net income?
N/A
Icebreaker must close its books and prepare financial statements at December 31.
a-1. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency
receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars.
a-4. What is the impact on net income over the two accounting periods?
b-1. Assuming that Icebreaker designates the forward contract as a fair value hedge of a foreign currency
receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars.
b-2. What is the impact on 2020 net income?
b-3. What is the impact on 2021 net income?
b-4. What is the impact on net income over the two accounting periods?
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