Clayton Industries sells medical equipment worldwide. On March 1 of the current year, the company sold equipment, with a cost of $160,000, to a foreign customer for 200,000 Euros payable in 60 days. At the same time, the company purchased a forward contract to sell 200,000 Euros in 60 days. In another transaction, the company committed, on March 15, to deliver equipment in May to a foreign customer in exchange for 300,000 Euros payable in June. This equipment is anticipated to have a completed cost of $210,000. On March 15, the company hedged the commitment by acquiring a forward contract to sell 300,000 Euros in 90 days. Changes in the value of the commitment are based on changes in forward rates, and all discounting is based on a 6% discount rate. Various spot and forward rates for the euro are as follows:
For individual months of March and April, calculate the income statement effect of:
1. The foreign currency transaction.
2. The hedge on the foreign currency transaction.
3. The foreign currency commitment.
4. The hedge on the foreign currency commitment.

  • CreatedApril 13, 2015
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