Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2013, with payment
Question:
Date___________________ Spot Rate ______ Forward Rate (to March 1, 2014)
December 1, 2013 ................$2.00 ............................. $2.075
December 31, 2013 ................2.10 ..............................2.200
March 1, 2014 ......................2.25 ................................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. 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. What is the impact on 2013 net income? What is the impact on 2014 net income? What is the impact on net income over the two accounting periods?
b. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. What is the impact on 2013 net income? What is the impact on 2014 net income? What is the impact on net income over the two accounting periods?
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Related Book For
Fundamentals of Advanced Accounting
ISBN: 978-0077667061
5th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
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