Corporation A sold parts to a German Customer on December 1 , year 1, with payment of 100,000 German Marks to be recieved on March 1, year 2. The following echange rates apply:
Date: Spot Rate: Forward Rate( to march 1, year2) Dec. 1, year1 $0.24 $0.23 Dec. 31, year1 0.22 0.20 March 1, year 2 0.25 0.25
Company A's incremental borrowing rate is 12 percent
Required:
A) Assuming no forward contract was enterd into, create all journal entries and post entries to T-accounts. What is the income to report in Year 1? What is the income to report in Year 2?
B) Assuming a forward contract to sell 100,000 German Marks was entered into on December 1, Year 1, as a cash flow hedge of a forigen currency recievable, Create all journal entries, post entries to T-accounts. What is income in Year 1? What is income to report in Year 2?