On December 1, 2017, Ringling Company (a U.S.-based company) entered into a three-month forward contract topurchase 1,340,000 pesos on March 1, 2018. The following U.S. dollar per peso exchange rates apply:Forward RateDateSpot Rate(to March 1, 2018)December 1, 2017$ 0.028$0.031December 31, 20170.0300.033March 1, 20180.034N/ARingling's incremental borrowing rate is 17 percent. The present value factor for two months at an annual interest rate of17 percent (1 percent per month) is 0.9723.Which of the following correctly describes the manner in which Ringling Company will report the forward contract on itsDecember 31, 2017, balance sheet? As a liability in the amount of $1,303.As an asset in the amount of $2,606.As a liability in the amount of $3,909.As an asset in the amount of $3,909.

The forward contract will be reported based on the increase or decrease in the value of the contract…

Answered: Which of the following correctly…

Which of the following correctly describes the manner in which Ringling Company will report the forward contract on its December 31, 2017, balance sheet?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question

On December 1, 2017, Ringling Company (a U.S.-based company) entered into a three-month forward contract to
purchase 1,340,000 pesos on March 1, 2018. The following U.S. dollar per peso exchange rates apply:
Forward Rate
Date
Spot Rate
(to March 1, 2018)
December 1, 2017
$ 0.028
$0.031
December 31, 2017
0.030
0.033
March 1, 2018
0.034
N/A
Ringling's incremental borrowing rate is 17 percent. The present value factor for two months at an annual interest rate of
17 percent (1 percent per month) is 0.9723.
Which of the following correctly describes the manner in which Ringling Company will report the forward contract on its
December 31, 2017, balance sheet?

As a liability in the amount of $1,303.
As an asset in the amount of $2,606.
As a liability in the amount of $3,909.
As an asset in the amount of $3,909.

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