On October 15, 2018, our company sells to a retailer located in Austria 12,000 units of a
Question:
On October 15, 2018, our company sells to a retailer located in Austria 12,000 units of a product at a sales price of €35 per unit, and we require payment in Euros (€). The exchange rate on the date of sale is $1.25:€1, and the due date for payment is January 15, 2019. To mitigate the risk of exchange rate fluctuations between the sale date and the collection date, on October 15, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to deliver €420,000 on January 15, 2019, while we lock in the $US we will receive on that date at the forward rate of $1.29:€1 (i.e., the forward rate on October 15, 2018 for settlement on January 15, 2019). Assume this derivative qualifies as a fair value hedge, and our company’s functional currency and reporting currency is the $US. The following table includes the spot rates, forward rates, and related values of the accounts receivable and forward contract on October 15, 2018, December 31, 2018, and January 15, 2019. When computing fair values, ignore discounting.
| Date | Spot Rate ( $ US = 1 Euro) | Carrying Value | Change in Carry Value | Forward Rate ( $US = 1 Euro) | FV Asset | Change in FV |
| October 15 2018 | 1.25 | $525,000 | 1.29 | |||
| December 31 2018 | 1.36 | $571,000 | $46,200 | 1.37 | $(33,600) | $(22,600) |
| January 15 2019 | 1.40 | $588,000 | $16,800 | 1.40 | $(46,200) | $(12,600) |
Reconcile to the forward rate at the forward contract's inception the net cash received for both the settlement of the receivable and the settlement of the forward-contract derivative.
1. Net cash received from settlement of the receivable and forward-contract derivative is: $541,800
2. Amount of sales recognized in the quarter ending December 31, 2018:
3. Amount of sales recognized in the quarter ending March 31, 2019:
4. Total amount of sales recognized across the quarters ending December 31, 2018, and March 31, 2019:
Expert Answer:
Details pertaining an international sales with USD and Euro as currency involved is provided below The details pertaining receivable connected with this sales is provided for the period between Octobe... View the full answer
