60.1K

Verified Solution

Link Copied!

Brandlin Company of Anaheim, California, sells parts to aforeign customer on December 1, 2017, with payment of 33,000korunas to be received on March 1, 2018. Brandlin enters into aforward contract on December 1, 2017, to sell 33,000 korunas onMarch 1, 2018. Relevant exchange rates for the koruna on variousdates are as follows: Date Spot Rate Forward Rate (to March 1,2018) December 1, 2017 $ 5.10 $ 5.175 December 31, 2017 5.20 5.300March 1, 2018 5.35 N/A Brandlin's incremental borrowing rate is 18percent. The present value factor for two months at an annualinterest rate of 18 percent (1.5 percent per month) is 0.9707.Brandlin must close its books and prepare financial statements atDecember 31. a-1. Assuming that Brandlin designates the forwardcontract as a cash flow hedge of a foreign currency receivable andrecognizes any premium or discount using the straight-line 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 impacton 2018 net income? a-4. What is the impact on net income over thetwo accounting periods? b-1. Assuming that Brandlin designates theforward contract as a fair value hedge of a foreign currencyreceivable, prepare journal entries for these transactions in U.S.dollars. b-2. What is the impact on 2017 net income? b-3. What isthe impact on 2018 net income? b-4. What is the impact on netincome over the two accounting periods?