Cobra Corporation, with a June 30 yearend, purchased a machine on April 1, 2021, for250,000. The machine will be delivered on June 10, 2021, and payment is due on July 15, 2021. The machine will be depreciated on a straight-line basis over 10 years. Immediately after the purchase, Cobra Corporation entered into a forward foreign exchange contract to buy 250,000 on July 15, 2021, at an exchange rate of $1 = 0.620.

The following exchange rates are applicable:

Date	Spot rate: $1 =	Forward rate: $1 =
April 1	0.625	0.620
June 10	0.640	0.635
June 30	0.675	0.672
July 15	0.665	0.665

Required:

1. Show how the above transactions will be reflected in Cobra Corporation's financial statements, including the net effect on net income before tax, for the year ended June 30, 2021, assuming that:

2. Cobra Corporation does not apply hedge accounting.
4. Cobra Corporation applies hedge accounting and designates the hedge as a cash flow hedge.

1. What was the cost of the hedge?

1. Proof that, although the result on June 30 is different applying hedge account vs not applying hedge accounting, the overall result is the same, i.e., the company is overall not better or worse off.

Round all amounts to the nearest dollar.

Answer rating: 100% (QA)

Solution Part 1 Transactions and Financial Statement Reflection NonHedge Accounting 1 Purchase of machine Debit Asset Machine 250000 Credit Accounts P... View the full answer