Question

Brandlin Company of Anahelm, Callfornla, sells parts to a foreign customer on December 1, 2017, with payment of 14,000 korunas to be recelved on March 1, 2018. Brandlin enters Into a forward contract on December 1, 2017, to sell 14,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on varlous dates are as follows: Forward Rate (to March 1, 2818) 3.275 3.408 Spot Rate Date December 1, 2017 December 31, 2817 March 1, 2818 $ 3.28 3.38 3.45 Brandlin's Incremental borrowing rate Is 15 percent. The present value factor for two months at an annual Interest rate of 1 percent (1.25 percent per month) Is 0.9755. Brandlin must close Its books and prepare financlal statements at December 3 a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency recelvable and recognizes any premium or discount using the straight-llne method, prepare Journal entries for these transactions In U.S. dollars. a-2. What is the Impact on 2017 net Income? a-3. What is the Impact on 2018 net Income? a-4. What Is the Impact on net Income over the two accounting perlods? b-1. Assuming that Brandlin designates the forward contract as a falr value hedge of a foreign currency recelvable, prepar Journal entries for these transactions In U.S. dollars. b-2. What Is the Impact on 2017 net Income? b-3. What Is the Impact on 2018 net Income? b-4. What Is the Impact on net Income over the two accounting periods? Complete this question by entering your answers in the tabs below. Req A1Req A2 to A4 Req B1Req B2 to B4 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to 2 decimal places.) Show lessA View transaction list Journal entry worksheet 123 4 5 6 78 12 Record the sales and foreign currency account receivable

Answer 1

As per HomeworkLib policy only first four parts of the question will be addressed.

Part 1

No.	Date	Journal entry	debit	credit
1	12/1/17	Accounts Receivable (K) (14000*3.20)	44800
		Sales Revenue		44800
		(To record sales revenue and a foreign currency account receivable.)
2.		No journal entry required
		(No entry for the forward contract.)
3.	12/31/17	Accounts Receivable (K) (14000* (3.30-3.20))	1400
		Foreign Exchange Gain		1400
		To revalue the foreign currency account receivable and recognize a foreign exchange gain.)
4		AOCI (14000*(3.400-3.275)*0.9755)	1707.13
		Forward Contract		1707.13
		(To record the change in fair value of the forward contract as a liability.)
5		Loss on Forward Contract	1400
		AOCI		1400
		(To record a loss on forward contract to offset the foreign exchange gain.)
6		AOCI (14000*(3.275-3.20)/3)	350
		Premium Revenue		350
		(To allocate the forward contract premium as revenue over the life of the contract.)
7	3/1/18	Accounts Receivable (K) (14000*(3.45-3.30))	2100
		Foreign Exchange Gain		2100
		(To revalue the foreign currency account receivable and recognize a foreign exchange gain.)
8		AOCI ((14000*(3.45-3.275))-1707.13)	742.87
		Forward Contract		742.87
		(To adjust the carrying value of the forward contract to its current fair value.)
9		Loss on Forward Contract	2100
		AOCI		2100
		(To record a loss on forward contract to offset the foreign exchange gain.)
10		AOCI (14000*(3.275-3.20)*2/3)	700
		Premium Revenue		700
		(To allocate the forward contract premium as revenue over the life of the contract.)
11		Foreign Currency (K) (44800+1400+2100)	48300
		Accounts Receivable (K)		48300
		(To record the receipt of korunas from the foreign customer.)
12		Cash (14000*3.275)	45850
		Forward Contract	2450
		Foreign Currency (K)		48300
		(To record settlement of the forward contract.)

Part A-2

Impact on 2017 net income:

Sales Revenue	44800
Foreign Exchange Gain	1400
Loss on Forward Contract	(1400)
Premium Revenue	350
Total	45150

Part A-3

Impact on 2017 net income:

Foreign Exchange Gain	2100
Loss on Forward Contract	(2100)
Premium Revenue	700
Total	700

Part A-4

Impact on net income over both periods = 45150+700 = 45850