Question

Multiple Choice Questions
1. On December 1, 2015, Barnum Company (a U.S.-based company) entered into a three-month forward contract to purchase 1,000,000 ringgits on March 1, 2016. The following U.S. dollar per ringgit exchange rates apply:


Barnum’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803.
Which of the following correctly describes the manner in which Barnum Company will report the forward contract on its December 31, 2015, balance sheet?
a. As an asset in the amount of $1,960.60.
b. As an asset in the amount of $3,921.20.
c. As a liability in the amount of $6,862.10.
d. As a liability in the amount of $4,901.50.

2. What was the net impact on Jensen Company’s 2015 income as a result of this fair value hedge of a firm commitment?
a. $–0–.
b. $680.30 decrease in income.
c. $300 increase in income.
d. $980.30 increase in income.

3. What is the net impact on Werner’s net income for the quarter ended March 31, 2015, as a result of this forward contract hedge of a firm commitment?
a. $–0–.
b. $1,250 increase in net income.
c. $1,500 decrease in net income.
d. $1,500 increase in net income.

4. What is the net impact on Dos Santos Company’s 2015 net income as a result of this hedge of a forecasted foreign currency transaction?
a. $–0–.
b. $400 decrease in net income.
c. $1,000 decrease in net income.
d. $1,400 decrease in net income.

5. What is the net impact on Dos Santos Company’s 2016 net income as a result of this hedge of a forecasted foreign currency transaction? Assume that the raw materials are consumed and become a part of the cost of goods sold in 2016.
a. $80,000 decrease in net income.
b. $80,600 decrease in net income.
c. $81,100 decrease in net income.
d. $83,100 decrease in netincome.


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  • CreatedJanuary 08, 2015
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