Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2015, with payment
Question:
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2015, with payment of 18,000 korunas to be received on March 1, 2016. Brandlin enters into a forward contract on December 1, 2015, to sell 18,000 korunas on March 1, 2016. Relevant exchange rates for the koruna on various dates are as follows:
Date | Spot Rate | Forward Rate (to March 1, 2016) | ||
December 1, 2015 | $ | 2.90 | $ | 2.975 |
December 31, 2015 | 3.00 | 3.100 | ||
March 1, 2016 | 3.15 | N/A | ||
Brandlin’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. Brandlin must close its books and prepare financial statements at December 31. |
a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate
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Fundamentals of Advanced Accounting
ISBN: 978-0077862237
6th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik