Brandlin company of anaheim, california, sells parts to a foreign customer on december 1, 2017, with payment of 24,000 korunas to be received on march 1, 2018. Brandlin enters into a forward contact on december 1, 2017 to sell 24,000 korunas on march 1, 2018. Relevant exchange rates for the korunas on various dates are as follow:date                                spot rate                 forward ratedecember 1, 2017           4.20                          4.275december 31, 2017         4.30                           4.400march 1, 2018                  4.45                            n/a brandli's incremental borrowing rate is 12 percent. The present value factor for two months at 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 those transactions in in U.S. dollars.2. What is the impact on 2017 net income?3. What is the impact on 2018 net income?4. What is the impact on the net income over the two accounting periods?

Question
Asked Mar 18, 2019
1059 views

Brandlin company of anaheim, california, sells parts to a foreign customer on december 1, 2017, with payment of 24,000 korunas to be received on march 1, 2018. Brandlin enters into a forward contact on december 1, 2017 to sell 24,000 korunas on march 1, 2018. Relevant exchange rates for the korunas on various dates are as follow:

date                                spot rate                 forward rate

december 1, 2017           4.20                          4.275

december 31, 2017         4.30                           4.400

march 1, 2018                  4.45                            n/a

 

brandli's incremental borrowing rate is 12 percent. The present value factor for two months at 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 those transactions in in U.S. dollars.

2. What is the impact on 2017 net income?

3. What is the impact on 2018 net income?

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

check_circle

Expert Answer

Step 1

1.

Prepare journal entries for transactions dates as follows:

 

fullscreen
Step 2
fullscreen
Step 3

2.

Impact of 2017 net incom...

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Exercise 5-9 (Part Level Submission) Suppose in its income statement for the year ended June 30, 20...

A: The multiple-step income statement is the statements that segregates the operating revenues and oper...

question_answer

Q: xample #6 The company received a bill for December’s utilities on January 5. The bill was for $235. ...

A: Matching principle: As per this principle, the business entity should report an expense on its incom...

question_answer

Q: Bob and Ted are partners. Bob is a 70% partner and Ted is a 30% partner. They have decided to liquid...

A: Partnership: This is the form of business entity which is formed by an agreement, owned and managed ...

question_answer

Q: Early in the year Bill Sharnes and several friends organized a corporation called Sharnes Communicat...

A: Journal entries means writing down the transaction that takes place in a business, in the journal of...

question_answer

Q: Need Complete Explanation

A: Calcuation of share of loss by Partner Z. 

question_answer

Q: Cost classifications For each of the following costs, check the column(s) that most likely applies (...

A: Fixed cost: A fixed cost is a cost incurred by a company that remains fixed irrespective of the volu...

question_answer

Q: Question 22 (S corporations: use of basis in loans for entity losses) Cynthia and Doug are equal sha...

A: Operating loss is a loss incurred by the company when Company’s operating expenses exceeds its gross...

question_answer

Q: FB Manufacturing Company is a partnership among Yolando Gonzalez, Willies Todd, and Linda Walkers. T...

A: Partnership: A partnership is that type of business in which two or more person share loss and profi...

question_answer

Q: On January 1, 2019, Bailey Industries had shares outstanding as follows.6% cumulative preference sha...

A: Earnings per share is a financial ratio that indicates a company’s ability to earn revenue for its c...