ADVANCED ACCOUNTING
13th Edition
ISBN: 9781260773033
Author: Hoyle
Publisher: MCG
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Textbook Question
Chapter 9, Problem 4DYS
ANALYSIS CASE—CASH FLOW HEDGE
On February 1, 2017, Linber Company
Linber’s financial statements reported the following amounts related to this cash flow hedge (credit balances in parentheses):
| Income Statement | First Quarter 2017 | Second Quarter 2017 | |
| Premium expense | $4,000 | $ 2,000 | |
| Cost of goods sold | –0– | 103,000 | |
| Adjustment to net income | –0– | 3,000 | |
| Balance Sheet | 3/31/17 | 5/1/17 | |
| Forward contract (liability) | $(1,980)* | $ –0– | |
| AOCI (credit) | (2,020) | –0– | |
| Change in cash | –0– | (106,000) | |
*$2,000 × 0.9901 = $1,980, where 0.9901 is the present value factor for one month at an annual interest rate of 12 percent calculated as 1/1.01.
Required
- 1. On February 1, 2017, what was the U.S. dollar per euro forward rate to May 1, 2017?
- 2. On March 31, 2017, what was the U.S. dollar per euro forward rate to May 1, 2017?
- 3. Was Linber better off or worse off as a result of having entered into this cash flow hedge of a forecasted transaction? By what amount?
- 4. What does the total premium expense of $6,000 reflect?
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Chapter 9 Solutions
ADVANCED ACCOUNTING
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