On February 1, 2015, Linber Company forecasted the purchase of component parts on May 1, 2015, at

Question:

On February 1, 2015, Linber Company forecasted the purchase of component parts on May 1, 2015, at a price of 100,000 euros. On that date, Linber entered into a forward contract to purchase 100,000 euros on May 1, 2015. It designated the forward contract as a cash flow hedge of the forecasted transaction. The spot rate for euros on February 1, 2015, was $1 per euro. On May 1, 2015, the forward contract was settled, and the component parts were received and paid for. The parts were consumed in the second quarter of 2015.

Linber's financial statements reported the following amounts related to this cash flow hedge (credit balances in parentheses):

On February 1, 2015, Linber Company forecasted the purchase of

Required
1. On February 1, 2015, what was the U.S. dollar per euro forward rate to May 1, 2015?
2. On March 31, 2015, what was the U.S. dollar per euro forward rate to May 1, 2015?
3. Was Linber better off or worse off as a result of having entered into this cash flow hedge of a forecasted transaction? By what amount?
4. What does the total premium expense of $6,000 reflect?

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...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Advanced Accounting

ISBN: 978-0077862220

12th edition

Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik

Question Posted: