On November Cheng Company a USbased company forecasts the purchase of goods from a foreign supplier for yuan. Cheng expects to receive the goods on April and make immediate payment. On November Cheng enters into a sixmonth forward contract to buy yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straightline method on a monthly basis over the life of the contract. The following US dollarYuan exchange rates apply:
Date Spot Rate Forward Rate to April
November $ $
December
April NA
As expected, Cheng receives goods from the foreign supplier on April and pays yuan immediately. Cheng sells the imported goods in the local market in May
Required:
Prepare all journal entries, including December adjusting entries, to record the foreign currency forward contract and import purchase.
What is the impact on net income in
What is the impact on net income in
