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Recording sales transactions qualifying as foreign-currency firm commitments Assume our U.S.-based company's functional currency is the SUS and it enters into a "firm commitment" with a Portugal-based retailer on November 15, 2018. The firm commitment requires our company to sell 60,000 units of an inventory item costing €40 each to the Portuguese company. Our company is contractually committed to ship the inventory (ie.. title transfers) on February 15, 2019, with payment in Euros on the same date. Our company does recurring business with the Portuguese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 15, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 15, 2019) to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a fair value hedge. The relevant exchange rates and related balances for the period from November 15, 2018, to February 15, 2019, are as follows: Derivative-Forward Spot Rate Forward Rate (SUS-(1) (SUS-1) 147 1.42 Date November 15, 2018 December 31, 2018 February 15, 2019 1.40 1.32 1.32 *For settlement on February 15, 2019 Ignore discounting in the computation of fair values. On February 15, 2019, what is the net amount of cash received by our company for the delivery of inventory and the settlement of the forward contract? Select one: O a. 50 O b. $2.880.000 O c. $3.168.000 O d. $3,408.000 FV Change in FV $48,000 $48,000 240,000 192,000

Recording sales transactions qualifying as foreign-currency firm commitments Assume our U.S.-based company's functional currency is the SUS and it enters into a "firm commitment" with a Portugal-based retailer on November 15, 2018. The firm commitment requires our company to sell 60,000 units of an inventory item costing €40 each to the Portuguese company. Our company is contractually committed to ship the inventory (ie.. title transfers) on February 15, 2019, with payment in Euros on the same date. Our company does recurring business with the Portuguese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 15, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 15, 2019) to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a fair value hedge. The relevant exchange rates and related balances for the period from November 15, 2018, to February 15, 2019, are as follows: Derivative-Forward Spot Rate Forward Rate (SUS-(1) (SUS-1) 147 1.42 Date November 15, 2018 December 31, 2018 February 15, 2019 1.40 1.32 1.32 *For settlement on February 15, 2019 Ignore discounting in the computation of fair values. On February 15, 2019, what is the net amount of cash received by our company for the delivery of inventory and the settlement of the forward contract? Select one: O a. 50 O b. $2.880.000 O c. $3.168.000 O d. $3,408.000 FV Change in FV $48,000 $48,000 240,000 192,000

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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Recording sales transactions qualifying as foreign-currency firm commitments Assume our U.S.-based company's functional currency is the $US and it enters into a "firm commitment" with a Portugal-based retailer on November 15, 2018. The firm commitment requires our company to sell 60,000 units of an inventory item costing €40 each to the Portuguese company. Our company is contractually committed to ship the inventory (i.e., title transfers) on February 15, 2019, with payment in Euros on the same date. Our company does recurring business with the Portuguese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 15, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 15, 2019) to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a fair value hedge. The relevant exchange rates and related balances for the period from November 15, 2018, to February 15, 2019, are as follows: Spot Rate Forward Rate (SUS - €1) (SUS-1) 1.47 1.42 1.42 1.32 Select one: O a. $0. O b. $2,880,000 O c. $3,168,000 O d. $3,408,000 Derivative-Forward Date November 15, 2018 December 31, 2018 February 15, 2019 a For settlement on February 15, 2019 b Ignore discounting in the computation of fair values. On February 15, 2019, what is the net amount of cash received by our company for the delivery of inventory and the settlement of the forward contract? 1.32 Fyb Change in FV $48,000 $48,000 192,000 240,000
Transcribed Image Text:Recording sales transactions qualifying as foreign-currency firm commitments Assume our U.S.-based company's functional currency is the $US and it enters into a "firm commitment" with a Portugal-based retailer on November 15, 2018. The firm commitment requires our company to sell 60,000 units of an inventory item costing €40 each to the Portuguese company. Our company is contractually committed to ship the inventory (i.e., title transfers) on February 15, 2019, with payment in Euros on the same date. Our company does recurring business with the Portuguese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 15, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 15, 2019) to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a fair value hedge. The relevant exchange rates and related balances for the period from November 15, 2018, to February 15, 2019, are as follows: Spot Rate Forward Rate (SUS - €1) (SUS-1) 1.47 1.42 1.42 1.32 Select one: O a. $0. O b. $2,880,000 O c. $3,168,000 O d. $3,408,000 Derivative-Forward Date November 15, 2018 December 31, 2018 February 15, 2019 a For settlement on February 15, 2019 b Ignore discounting in the computation of fair values. On February 15, 2019, what is the net amount of cash received by our company for the delivery of inventory and the settlement of the forward contract? 1.32 Fyb Change in FV $48,000 $48,000 192,000 240,000
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