On December 1, Year 1, Tackett Company (a U.S.-based company) entered into a three-month forward contract to
Question:
On December 1, Year 1, Tackett Company (a U.S.-based company) entered into a three-month forward contract to purchase 1 million Mexican pesos on March 1, Year 2. The following U.S. dollar–peso exchange rates apply:
Tackett’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. Which of the following correctly describes the manner in which Tackett Company will report the forward contract on its December 31, Year 1, balance sheet?
a. As an asset in the amount of $3,921.20.
b. As an asset in the amount of $7,842.40.
c. As a liability in the amount of $13,724.20.
d. As a liability in the amount of $9,803.00.
Step by Step Answer:
International Accounting
ISBN: 9781264556991
6th Edition
Authors: Timothy Doupnik, Mark Finn, Giorgio Gotti And Hector Perera