Question

On November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 270,000 FCUs with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 270,000 FCUs. The company properly designates the forward contract as a cash flow hedge of a foreign currency receivable. The following exchange rates apply: Date November 1, 2017 December 31, 2017 April 30, 2018 Spot Rate $ 0.38 0.36 0.35 Forward Rate (to April 30, 2018) $ 0.37 0.34 N/A Bernard's incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610. a. Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract. b. What is the impact on net income in 2017? c. What is the impact on net income in 2018?

Answer 1

Age- Soli Account Recivable (Feu) Fuyd Fawdd Contract CSOuar chan e n value uSAatar valu 2012018 SPot Rate Rate toFair Va lue change Jn Faif yatue Rate 3c038 $38000 34 $ 0 13d036 36000- 000 $3 $ २83' + $२६83 $000 - $ 883 120/20180.35 35000l000 P 35 $34000-$(3000) xo.961 = $ 0.883j $34000- ou where 96 the Present valiueacto annual nerey Rate o2.(q.Per 014-4 months at month) catuclated = 2000 $3t000$ 35000

Page- 201 Tournal Entrieg credie LofDebi Particluars Date 011301AccOUnt Receivable (Fcu30c00 38000 sales There No entgy Fo Fð anrd contiact Fieign Exchange lO శిం00 Accounts Receivable (Fcu) $ 2000 $a883 Fowaid contYact 9:883 Aoc2 COunt EXpe nse Aoci $33 -33 (H0000x$38-3)- $ 1000y-% 332-33) $333.33 yncome the Year $ 38,000.000 The mpact on Net Sales Feign Exchange taa Gafn on C2000 000 ) (000-000) Faward Contact - gain lo (333.33) Net Di's count EXpense $34,666.6 Tmpact on net ncome

Page-3 18 Journal entries f ebit Amant CYedft Amnt Pate Paiticluan मीা্छ Feign Exchange os Accountseceivable (FUC) AocI Gain Fðlward 1000 Contrat 883 AOCT FOVd ontract $883 $ 666.66 iA COunt EXPense $666 66 A oc $35000 rieign curency (FLuj $35000 Aoc3 cajh Foveign currency (Feu 3000 $35000 BMard contract Jncome a the Yeav aol8 The mpact on Net Feign Exchange tos Gain ca Fa uard contract $ (Q79000 ) (210000 O.000 Net gain ((o 666.66 Diblount ExpeDse Tmpact $66.66 On Net Prcome