On December 1, 2016, Mosby, a U.S. company, sells goods to a German company, with payment of 300,000 euros to be received on March 1, 2017. Mosby also enters into a forward contract on December 1, 2016 to sell 300,000 euros on March 1, 2017. Exchange rates for the euro on various dates are as follows: Date Spot Rate Forward Rate (to March 1, 2017) December 1, 2016 December 31, 2016 March 1, 2017 $1.28 1.32 1.34 $1.26 1.30 N/A Assuming that Mosby designates the forward contract as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2016 resulting solel from the fluctuation in the value of Euro? Mosby amortizes forward points on a monthly basis using a straight-line method. $2,000 decrease in net income. $12,000 increase in net income. $3,000 decrease in net income.
On December 1, 2016, Mosby, a U.S. company, sells goods to a German company, with payment of 300,000 euros to be received on March 1, 2017. Mosby also enters into a forward contract on December 1, 2016 to sell 300,000 euros on March 1, 2017. Exchange rates for the euro on various dates are as follows: Date Spot Rate Forward Rate (to March 1, 2017) December 1, 2016 December 31, 2016 March 1, 2017 $1.28 1.32 1.34 $1.26 1.30 N/A Assuming that Mosby designates the forward contract as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2016 resulting solel from the fluctuation in the value of Euro? Mosby amortizes forward points on a monthly basis using a straight-line method. $2,000 decrease in net income. $12,000 increase in net income. $3,000 decrease in net income.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On December 1, 2016, Mosby, a U.S. company, sells goods to a German company, with payment of 300,000 euros to be received on March 1, 2017. Mosby also enters into a
forward contract on December 1, 2016 to sell 300,000 euros on March 1, 2017. Exchange rates for the euro on various dates are as follows:
Spot Rate
Forward Rate (to March 1, 2017)
Date
December 1, 2016
December 31, 2016
March 1, 2017
$1.28
1.32
1.34
$1.26
1.30
N/A
Assuming that Mosby designates the forward contract as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2016 resulting solely
from the fluctuation in the value of Euro? Mosby amortizes forward points on a monthly basis using a straight-line method.
$2,000 decrease in net income.
$12,000 increase in net income.
$3,000 decrease in net income.
$1,500 decrease in net income.
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