Use the same facts as in Problem 31 except that Icebreaker Company purchases materials from a foreign supplier on December 1, 2023, with payment of 16,000 dinars to be made on March 1, 2024. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2023, Icebreaker enters into a forward contract to purchase 16,000 dinars on March 1, 2024.

a. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars. What is the impact on 2023 net income? What is the impact on 2024 net income? What is the impact on net income over the two accounting periods?

b. Assuming that Icebreaker designates the forward contract as a fair value hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars. What is the impact on net income in 2023 and in 2024? What is the impact on net income over the two accounting periods?

Data from Problem 31:

Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2023, with payment of 16,000 dinars to be received on March 1, 2024. Icebreaker enters into a forward contract on December 1, 2023, to sell 16,000 dinars on March 1, 2024. The forward points on the forward contract are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows:

Date December 1, 2023 December 31, 2023 March 1, 2024 Spot Rate $2.70 2.80 2.95 Forward Rate (to March 1, 2024) $2.775 2.900 N/A