alihassanmian

alihassanmian

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Ali HassanUniversity of Newcastle

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Project Management1History8Law1Management3English6Anthropology1Business1Sociology1Nursing1Psychology1Information Technology1Algebra1Computer Science2Accounting3Calculus1Biology13Mathematics12Statistics3Physics15Economics7Chemistry21
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  1. Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2011, with payment of 20,000 korunas to be received on March 1, 2012. Brandlin enters into a forward contract on December 1, 2011, to sell 20,000 korunas on March 1, 2012. Relevant exchange rates for the koruna on various dates are as follows:

Forward Rate

Date                            Spot Rate                                                       (to March 1, 2012)

December 1, 2011       $2.00                                                               $2.075

December 31, 2011     2.10                                                                 2.200

March 1, 2012             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.

  1. 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 2011 net income?

What is the impact on 2012 net income?

What is the impact on net income over the two accounting periods?

  1. 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 2011 net income? What is the impact on 2012 net income? What is the impact on net income over the two accounting periods?
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