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.
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- Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with payment of 16,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on December 1, 2020, to sell 16,000 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 Spot Rate Forward Rate(to March 1, 2021) December 1, 2020 $ 3.40 $ 3.475 December 31, 2020 3.50 3.600 March 1, 2021 3.65 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-2. What is the impact on…Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2023, with payment of 19,000 dinars to be received on March 1, 2024. Icebreaker enters into a forward contract on December 1, 2023, to sell 19,000 dinars on March 1, 2024. 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, 2023 December 31, 2023 March 1, 2024 Spot Rate $ 3.70 3.80 3.95 Forward Rate (to March 1, 2024) $ 3.775 3.900 N/A Icebreaker must close its books and prepare financial statements at December 31. 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. Note: If no entry is required for a transaction/event, select "No Journal Entry…On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.09 per Norwegian krone, Derby enters into a forward contract to purchase 6 02,500 Norwegian kroner at a three-month forward rate of $0.10. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.098 per Norwegian krone, Derby orders and receives the merchandise, paying 602,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss?
- On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.28 per Norwegian krone, Derby enters into a forward contract to purchase 617,500 Norwegian kroner at a three-month forward rate of $0.29. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.286 per Norwegian krone, Derby orders and receives the merchandise, paying 617,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss? Complete this question by entering your…On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.45 per Norwegian krone, Derby enters into a forward contract to purchase 527,500 Norwegian kroner at a three-month forward rate of $0.490. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.482 per Norwegian krone, Derby orders and receives the merchandise, paying 527,500 kroner. The merchandise is sold within 30 days. What amount(s) does Derby report in net income as a result of this cash flow hedge of a forecasted transaction and the related purchase and sale of merchandise? Cost of goods sold of $254,255 plus foreign exchange loss of $4,220 Cost of goods sold of $258,475 Cost of goods sold of $237,375 plus foreign exchange loss of $21,100 Cost of goods…On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.33 per Norwegian krone, Derby enters into a forward contract to purchase 635,000 Norwegian kroner at a three-month forward rate of $0.360. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.351 per Norwegian krone, Derby orders and receives the merchandise, paying 635,000 kroner. The merchandise is sold within 30 days. What amount(s) does Derby report in net income as a result of this cash flow hedge of a forecasted transaction and the related purchase and sale of merchandise? Multiple Choice Cost of goods sold of $222,885 plus foreign exchange loss of $5,715 Cost of goods sold of $228,600 less foreign exchange gain of $19,050 Cost of goods sold of $209,550…
- On November 1, 2021, Americo, Corporation purchased wine on credit from Venezia Company for €800,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2022. On November 1, 2021, Americo, Corporation also entered a 120-day forward contract to purchase €800,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT FORWARD11/1/2021 $ 1.09 $ 1.06 (120 days) 12/31/2021 $ 1.05 $ 1.11 (60 days) 2/28/2022 $ 1.12 JOURNAL ENTRIES ON NOVEMBER 1, 2021 (TRANSACTION DATE): Foreign Currency Transaction YEAR-END OF DECEMBER 31, 2021: JOURNAL ENTRIES:Foreign Currency Transaction FINANCIAL STATEMENT PRESENTATION INCOME STATEMENT JOURNAL ENTRIES ON FEBRUARY 28, 2022 (SETTLEMENT DATE):On November 1, 2020, Americo, Corporation purchased wine on credit from Venezia Company for €800,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2021. On November 1, 2020, Americo, Corporation also entered a 120-day forward contract to purchase €800,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT FORWARD 11/1/2020 $ 1.22 $ 12/31/2020 2/28/2021 $ 1.19 1.24 (120 days) 1.17 (60 days) 1.18 $Townshend Company sold guitars to The Who Inc. for £250,000 on September 21, 2020. The collection of payment from The Who, Inc. is due on December 19, 2020. Additionally, on September 21, Townshend entered into a 90-day forward contract to sell £250,000 at a rate of £1 = $1.23. The forward contract was entered into to manage the exposed net asset position in UK Pounds, but it was not designated as a hedge. The spot rates were: 09/21/20 £1 = $1.21 12/20/20 £1 = $1.24 Looking back on the entire situation (i.e., the original transaction and the forward contract) in terms of the US$ needed to settle both transactions, did entering the forward contract work out well for Townshend Company? A) Yes. Without the forward contract, the company would have received fewer US$ when selling the pounds on the settlement date.
- Johnson Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2022, with payment of 25,000 dinars to be received on March 1, 2023. Johnson enters into a forward contract on December 1, 2022, to sell 25,000 dinars on March 1, 2023. The forward contract is not designated as a hedge. Relevant exchange rates for the dinar on various dates are as follows: Date December 1, 2022 December 31, 2022 March 1, 2023 O $1,500 O $1,800 O $2,400 Spot Rate O $2,000 $2.26 $2.40 $2.55 In its income statement for the year ended December 31, 2023, Johnson should report a foreign currency transaction gain of Forward Rate (to March 1, 2023) $2.30 2.48On December 1, 2020, Beta Company, a U.S. electronics company purchased equipment from a Brazilian company for 900,000 Brazilian Real. The account is to be sottled on January 31, 2021. To hedge against fluctuations in the exchange rate, On December 1, 2020 Beta Company entered into a forward contract to buy the 900,000 Brazilan Real on January 31, 2021 for $0.5453. Beta Company'a year-end is December 31and Soot.rates and the.forward.cates for the Brazilan Beal were as follows: Spot Rate Forward Rate (Delivery on January 31, 2021) December 1, 2020 $0.5451 December 31. 2020 January 31,2021 $0.5453 $0.5426 $0.5425 $0.5396 Required: Prepare the Journal entries to record the transactions, adjust the accounts on December 31, 2020 and settle the payable and forward contract on January 31,2021.On September 1, 2019 Philips corporation sold merchandise to a foreign customer for 300,000 Brazilian real with payment to be received on March 1, 2020. At the date of sale, Philips entered into a six month forward contract to sell 300,000 reals. The forward contract was properly designated as a fair value hedge. The following exchange rates apply: Date Spot rate Forward rate (to March 1, 2020) September 1, 2019 $0.46 $ 0.49 December 31, 2019 0.50 0.52 March 1, 2020 0.54 Philips’ incremental borrowing rate is 12%. The present value factor at an annual interest rate of 12% is .9610. What journal entry should Philips prepare to record the value of the forward contract on December…