On 6/1/17, an American firm purchased an inventory costing 100,000 Canadian Dollars from a Canadian firm to
Question:
On 6/1/17, an American firm purchased an inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/17. Also on 6/1/17, the American firm entered into a forward contract to purchase 100,000 Canadian dollars for delivery on 8/1/17. The exchange rates were as follows:
Spot | Forward | |
6/1/17 | 1 CD = $0.73 | 1 CD = $0.74 |
6/30/17 | 1 CD = $0.75 | 1 CD = $0.76 |
8/1/17 | 1 CD = $0.78 | 1 CD = $0.78 |
The American firm’s fiscal year end is 6/30/17. The changes in the value of the forward contract should be discounted at 8%. The transaction qualifies as for accounting as a cash flow hedge. What is the total amount that will be recognized in other comprehensive income in the year ended 6/30/17?
a. | $1,987 debit | |
b. | $2,320 credit | |
c. | $320 credit | |
d. | $2,000 debit |
Fundamentals of Advanced Accounting
ISBN: 978-0077667061
5th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik