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Category > Accounting Posted 11 Aug 2017 My Price 11.00

commitments,& hedging

Income Statement effect of transactions, committments & hedging

Income statement effect of transactions, commitments,& hedging. Clayton industries sells medical equipment worldwide. On Mar 1 of the current year, the company sold equipment, with a cost of $160,000 to a foreign customer for 200,000 euros payable in 60 days. At the same time, the company purchased a forward contract to sell 200,000 euros in 60 days. In another transaction, the company committed, on Mar 15, to deliver equipment in May to a foreign customer in exchange for 300,000 euros payble in June. This equipment is anticipated to have a completed cost of $210,000. On Mar 15, the company hedged the commitment by acquiring a forward contract to sell 300,000 in 90 days. Changes in the value of the commitment are based on changes in forward rates & all discounting is based on a 6% discount rate.

Various spot and forward rates for the euro are as follows:

Spot rate Forward rate fo 60 days from Mar 1 Forward rate for 90 days from Mar 15

Mar 1 $1.180 $1.181

Mar 15 1.181 1.180 $ 1.179

Mar 31 1.179 1.178 1.177

Apr 30 1.175 1.174

For individual months of Mar & Apr calculate the income statement effects of:

1. the foreign currency transaction

2. the hedge on the foreign currency transaction.

3. the foreign currency commitment.

4. the hedge on the foregin currency commitment.

Answers

Maurice Tutor
(5)
Status NEW Posted 11 Aug 2017 03:08 PM My Price 11.00

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