Use the following information on the U.S. dollar value of the euro. Spot Rate Forward Rate for
Question:
Use the following information on the U.S. dollar value of the euro.
Spot Rate | Forward Rate for April 30, 2021 Delivery | |
October 30, 2020 | $ 1.250 | $ 1.254 |
December 31, 2020 | 1.258 | 1.256 |
April 30, 2021 | 1.260 | 1.260 |
On October 30, 2020, a U.S. company forecasts that it will purchase merchandise from an Italian supplier at the end of April 2021, in the amount of €100,000, and will pay the supplier on delivery. On October 30, the company enters a forward contract to buy €100,000 on April 30, 2021 and classifies it as a cash flow hedge of the forecasted purchase. On April 30, 2021, the company receives the merchandise, closes the forward contract and pays the supplier. The company's accounting year ends December 31.
On December 31, 2020, how is the change in value of the forward contract reported?
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker