Items 27 and 28 are based on the following: On December 12, year 1, Imp Co. ente
ID: 2468238 • Letter: I
Question
Items 27 and 28 are based on the following: On December 12, year 1, Imp Co. entered into three forward exchange contracts, each to purchase 100,000 euros in ninety days. The relevant exchange rates are as follows: Spot rate Forward rate (for March 12, year 2) November 30, year 1 $.87 $.89 December 12, year 1 .88 .90 December 31, year 1 .92 .93 27. Imp entered into the first forward contract to hedge a purchase of inventory in November year 1, payable in March year 2. At December 31, year 1, what amount of foreign currency transaction gain from this forward contract should Imp include in net income?
A. $0 B. $ 3,000 C. $ 5,000 D. $10,000 E. $12,000 28.
At December 31, year 1, what amount of foreign currency transaction loss should Imp include in income from the revaluation of the Accounts Payable of 100,000 euros incurred as a result of the purchase of inventory at November 30, year 1, payable in March year 2?
A. $0 B. $3,000 C. $4,000 D. $5,000 E. $5,300
Explanation / Answer
27. Imp entered into the first forward contract to hedge a purchase of inventory in November year 1, payable in March year 2. At December 31, year 1, what amount of foreign currency transaction gain from this forward contract should Imp include in net income?
E. $12,000
28)
At December 31, year 1, what amount of foreign currency transaction loss should Imp include in income from the revaluation of the Accounts Payable of 100,000 euros incurred as a result of the purchase of inventory at November 30, year 1, payable in March year 2?
A. $0
Working
Journal Entry
No Gain or loss occurred on purchase of inventory at November 30 as it is being hedged
Date Account Title & Explaination Debit Credit Nov 30 Forward Contract Recievable 267000 Dollar Accounts Payable 267000 December 31 Forward Contract Recievable (0.93-0.89)*100000*3 12000 Gain on Hedge 12000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.