Question

Currency exchange rate fluctuations may impact Mattel's results of operations and cash flows. Mattel's currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency.
Inventory purchase transactions denominated in the euro, British pound ster ling, Canadian dollar, Mexican peso, Hong Kong dollar, and Indonesian rupiah were the primary transactions that caused foreign currency transaction exposure for Mattel in 2010.
Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of inventory denominated in foreign currencies. These contracts generally have maturity dates up to 18 months. These derivative instruments have been designated as effective cash flow hedges.
Additionally, Mattel uses foreign currency forward exchange contracts to hedge intercompany loans and advances denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for these contracts.

Required:
A. During 2010, for the forward contracts designated as a cash flow hedge, the value of unsettled forward contracts increased by $8,725 and the value of settled forward contracts decreased by $3,024. Prepare the journal entries to record the change in value of the forward contract and indicate on which financial statement the item is reported.
B. For the forward contracts not designated as a hedging instrument, the value of unsettled forward contracts decreased by $3,797 and the value of settled forward contracts increased by $3,052. Prepare the journal entries to record the change in value of the forward contracts and indicate on which financial statement the item is reported.
C. All forward contracts used by Mattel are classified as Level 2 investments. What does this mean?



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  • CreatedMarch 13, 2015
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