Brandlin Company of Anaheim, California, sells parts to a foreign customer on De

Question

Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2011, with payment of 20,000 korunas to be received on March 1, 2012. Brandlin enters into a forward contract on December 1, 2011, to sell 20,000 korunas on March 1, 2012. Relevant exchange rates for the koruna on various dates are as follows:
Date

Spot Rate

Forward Rate
(to March 1, 2012)
December 1, 2011

$ 2.00

$2.075

December 31, 2011
2.10
2.200

March 1, 2012
2.25
N/A

Brandlin's incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at December 31.

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.

(a-1)
Prepare journal entries for these transactions in U.S. dollars

Explanation / Answer

. WHAT IS THE AMOUNT OF THE DISCOUNT ON THESE BONDS AT ISSUANCE Face value is $180,000 Sale value is $170,862 so bond discount = $9,138 2. HOW MUCH TOTAL BOND INTEREST EXPENSE WILL BE RECOGNIZED OVER THE LIFE OF THESE BONDS? Total inflow $170,862 Total outflow over the life of the bonds = ($180,000 x 8% x 3 yrs) + $180,000 = 223,200 Total bond interest is the difference, so = $52,338. Another way of arriving at this is as follows: Total interest over the life = $180,000 x 8% x 3 yrs = $43,200 plus the bond discount $9,138 = $52,338

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.