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Category > Management Posted 04 Feb 2018 My Price 7.00

Eximco Corporation

Eximco Corporation (based in Champaign, Illinois) has a number of transactions with com- panies in the country of Mongagua, where the currency is the mong. On November 30, 2013, Eximco sold equipment at a price of 500,000 mongs to a Mongaguan customer that will make payment on January 31, 2014. In addition, on November 30, 2013, Eximco purchased raw materials from a Mongaguan supplier at a price of 300,000 mongs; it will make payment on January 31, 2014. To hedge its net exposure in mongs, Eximco entered into a two-month for- ward contract on November 30, 2013, to deliver 200,000 mongs to the foreign currency broker in exchange for $104,000. Eximco properly designates its forward contract as a fair value hedge of a foreign currency receivable. The following rates for the mong apply:

 

Date

 

Spot Rate

Forwa r d Rate

(to January 31, 2014)

November 30, 2013

$0.53

$0.52

December 31, 2013

0.50

0.48

January 31, 2014

0.49

N/A

Eximco’s incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901.

a. Prepare all journal entries, including December 31 adjusting entries, to record these trans- actions and the forward contract.

b . What is the impact on net income in 2013?

c . What is the impact on net income in 2014?

Answers

Maurice Tutor
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Status NEW Posted 04 Feb 2018 11:02 PM My Price 7.00

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