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 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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 Required" in the first account field. Do not round
intermediate calculations.
b-2. What is the impact on 2023 net income?
b-3. What is the impact on 2024 net income?
b-4. What is the impact on net income over the two accounting periods?
Note: For all requirements, do not round intermediate calculations. Negative amounts should be entered with a minus
sign.
b-2. Impact on 2023 net income
b-3. Impact on 2024 net income
b-4. Impact on net income over 2023 and 2024
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