Brandlin Company of Anaheim, California, sells parts to a
foreign customer on December 1, 2015, with...
50.1K
Verified Solution
Link Copied!
Question
Accounting
Brandlin Company of Anaheim, California, sells parts to aforeign customer on December 1, 2015, with payment of 27,000korunas to be received on March 1, 2016. Brandlin enters into aforward contract on December 1, 2015, to sell 27,000 korunas onMarch 1, 2016. Relevant exchange rates for the koruna on variousdates are as follows:
Date
Spot Rate
Forward Rate (to March 1, 2016)
December 1, 2015
$
3.80
$
3.875
December 31, 2015
3.90
4.000
March 1, 2016
4.05
N/A
Brandlin’s incremental borrowing rate is 12 percent. The presentvalue factor for two months at an annual interest rate of 12percent (1 percent per month) is 0.9803. Brandlin must close itsbooks and prepare financial statements at December 31.
a-1.
Assuming that Brandlin designates the forward contract as a cashflow hedge of a foreign currency receivable and recognizes anypremium or discount using the straight-line method, prepare journalentries for these transactions in U.S. dollars.(If no entry is required for atransaction/event, select "No journal entry required" in the firstaccount field.Do not round intermediatecalculations. Round your final answers to 2 decimalplaces.)
a-2.
What is the impact on 2015 net income? (Do not roundintermediate calculations.)
a-3.
What is the impact on 2016 net income? (Do not roundintermediate calculations.)
a-4.
What is the impact on net income over the two accountingperiods? (Do not round intermediatecalculations.)
b-1.
Assuming that Brandlin designates the forward contract as a fairvalue hedge of a foreign currency receivable, prepare journalentries for these transactions in U.S. dollars.(If no entry is required for atransaction/event, select "No journal entry required" in the firstaccount field.Do not round intermediatecalculations. Round your final answers to 2 decimalplaces.)
b-2.
What is the impact on 2015 net income? (Do not roundintermediate calculations. Round your final answers to 2 decimalplaces.)
b-3.
What is the impact on 2016 net income? (Do not roundintermediate calculations. Round your final answers to 2 decimalplaces.)
b-4.
What is the impact on net income over the two accountingperiods? (Do not round intermediatecalculations.)
Answer & Explanation
Solved by verified expert
3.6 Ratings (381 Votes)
Brandlin Company sells part to a Foreign customer on dec 1 2015 27000 Korunas to be received n Mar 1 2016 same time Dec 1 2015 company entered Forward contract Date Spot rate Forward rate to Mar 1 2016 Dec 1 2015 38 3875 Dec 31 2015 39 4 Macr 1 2016 405 NA Borrowing interesr rare 12 Present value for 2 Months ay annual Interest rate 12 09803 Now cash flow Hedge reserve Dec 1 2015 Details Debit Credit Account Receivable k 27000380 102600 Sales 102600 Dec 1 2015 No JE relates to Forward contract Dec 31 2015 Account Receivable k 2700001 2700 Foreign Excnagne gain loss 2700 Change in Exchange rate Dec 1 2015 38 Dec 31 2015 39 Gain on Exchange 01 In case of forward contract Loss on
See Answer
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
