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28 Sep 2019
Brandlin Company of Anaheim, California, sells parts to a foreigncustomer on December 1, 2011, with payment of 20,000 korunas to bereceived on March 1, 2012. Brandlin enters into a forward contracton December 1, 2011, to sell 20,000 korunas on March 1, 2012.Relevant exchange rates for the koruna on various dates are asfollows:
Date
Spot Rate
Forward Rate
(to March 1, 2012)
December 1, 2011
$ 2.00
$2.075
December 31, 2011
2.10
2.200
March 1, 2012
2.25
N/A
Brandlin's incremental borrowing rate is 12 percent. The presentvalue factor for two months at an annual interest rate of 12percent (1 percent per month) is 0.9803. Brandlin must close itsbooks and prepare financial statements at December 31.
Assuming that Brandlin designates the forward contract as a cashflow hedge of a foreign currency receivable and recognizes anypremium or discount using the straight-line method.
(a-1)
Prepare journal entries for these transactions in U.S.dollars
Brandlin Company of Anaheim, California, sells parts to a foreigncustomer on December 1, 2011, with payment of 20,000 korunas to bereceived on March 1, 2012. Brandlin enters into a forward contracton December 1, 2011, to sell 20,000 korunas on March 1, 2012.Relevant exchange rates for the koruna on various dates are asfollows:
Date
Spot Rate
Forward Rate
(to March 1, 2012)
December 1, 2011
$ 2.00
$2.075
December 31, 2011
2.10
2.200
March 1, 2012
2.25
N/A
Brandlin's incremental borrowing rate is 12 percent. The presentvalue factor for two months at an annual interest rate of 12percent (1 percent per month) is 0.9803. Brandlin must close itsbooks and prepare financial statements at December 31.
Assuming that Brandlin designates the forward contract as a cashflow hedge of a foreign currency receivable and recognizes anypremium or discount using the straight-line method.
(a-1)
Prepare journal entries for these transactions in U.S.dollars
Elin HesselLv2
28 Sep 2019