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Questions 21 - 27 use the same facts, listed below and repeated for each question: On Nov. 1, 20x1, TasteeFood Co., a U.S. company, purchased and received 15 tons of assorted dried peppers from Ola Co. which is located in Mexico. The peppers cost a total of 100 million pesos but TasteeFood does not plan to pay the related payable until Feb. 1,20x2. TasteeFood is concerned that pesos may increase in value so decided on Nov. 1, 20x1 to hedge using a forward contract, with a forward price of $0.047/peso. Some rates are: Date 11/1/20x1 12/31/20x1 Spot Rate $0.050/peso $0.052/peso Forward Rate (2/1/20 delivery) $0.047/peso $0.051/peso $0.056/peso 2/1/20x2 $0.056/peso Q24: Make any journal entries needed on 12/31/20x1 (a reporting date) for anything related to the purchase and forward. Use that entry or entries to answer this question: What is the total effect of any entries needed on Dec 31, 20x1 on Net Income? $200,000 decrease (B) $400,000 increase C) $400,000 decrease D) $200,000 increase E) None of the above

Questions 21 - 27 use the same facts, listed below and repeated for each question: On Nov. 1, 20x1, TasteeFood Co., a U.S. company, purchased and received 15 tons of assorted dried peppers from Ola Co. which is located in Mexico. The peppers cost a total of 100 million pesos but TasteeFood does not plan to pay the related payable until Feb. 1,20x2. TasteeFood is concerned that pesos may increase in value so decided on Nov. 1, 20x1 to hedge using a forward contract, with a forward price of $0.047/peso. Some rates are: Date 11/1/20x1 12/31/20x1 Spot Rate $0.050/peso $0.052/peso Forward Rate (2/1/20 delivery) $0.047/peso $0.051/peso $0.056/peso 2/1/20x2 $0.056/peso Q24: Make any journal entries needed on 12/31/20x1 (a reporting date) for anything related to the purchase and forward. Use that entry or entries to answer this question: What is the total effect of any entries needed on Dec 31, 20x1 on Net Income? $200,000 decrease (B) $400,000 increase C) $400,000 decrease D) $200,000 increase E) None of the above

FINANCIAL ACCOUNTING
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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Questions 21 - 27 use the same facts, listed below and repeated for each question: On Nov. 1, 20x1, TasteeFood Co., a U.S. company, purchased and received 15 tons of assorted dried peppers from Ola Co. which is located in Mexico. The peppers cost a total of 100 million pesos but TasteeFood does not plan to pay the related payable until Feb. 1,20x2. TasteeFood is concerned that pesos may increase in value so decided on Nov. 1, 20x1 to hedge using a forward contract, with a forward price of $0.047/peso. Some rates are: Date 11/1/20x1 12/31/20x1 Spot Rate $0.050/peso $0.052/peso Forward Rate (2/1/20 delivery) $0.047/peso $0.051/peso $0.056/peso 2/1/20x2 $0.056/peso Q24: Make any journal entries needed on 12/31/20x1 (a reporting date) for anything related to the purchase and forward. Use that entry or entries to answer this question: What is the total effect of any entries needed on Dec 31, 20x1 on Net Income? $200,000 decrease (B) $400,000 increase C) $400,000 decrease D) $200,000 increase E) None of the above
Transcribed Image Text:Questions 21 - 27 use the same facts, listed below and repeated for each question: On Nov. 1, 20x1, TasteeFood Co., a U.S. company, purchased and received 15 tons of assorted dried peppers from Ola Co. which is located in Mexico. The peppers cost a total of 100 million pesos but TasteeFood does not plan to pay the related payable until Feb. 1,20x2. TasteeFood is concerned that pesos may increase in value so decided on Nov. 1, 20x1 to hedge using a forward contract, with a forward price of $0.047/peso. Some rates are: Date 11/1/20x1 12/31/20x1 Spot Rate $0.050/peso $0.052/peso Forward Rate (2/1/20 delivery) $0.047/peso $0.051/peso $0.056/peso 2/1/20x2 $0.056/peso Q24: Make any journal entries needed on 12/31/20x1 (a reporting date) for anything related to the purchase and forward. Use that entry or entries to answer this question: What is the total effect of any entries needed on Dec 31, 20x1 on Net Income? $200,000 decrease (B) $400,000 increase C) $400,000 decrease D) $200,000 increase E) None of the above
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