HD Company sells goods to a Spanish customer at a price of 1 million euros. HD shipped good to its customer on December 1, Year1. The payment was received on March 1, Year 2. On December 1, Year1, HD signs a contract with First National Bank to deliver 1,000,000 euros in three months in exchange for $1,485,000
Date sport rate forward rate Fair Value of Forward Contract
12/1/ Year1 $1.600 $1.485
12/31/Year1 $1.700 $1.520 -35000
3/1/Year2 $1.500 $1.500 -15000
1. HD designates the forward contract as a cash flow hedge. What is the ending balance of accumulated other comprehensive income at the end of Year1?
2. HD designates the forward contract as a cash flow hedge. HD uses the straight-line method to allocate a portion of the forward contract discount. What is the net impact on Year 1 net income?
3. HD designates the forward contract as a cash flow hedge. What is the ending balance of accounts receivable at the end of Year1?
4. HD designates the forward contract as a cash flow hedge. What is the ending balance of accumulated other comprehensive income at the end of Year2?
5. HD designates the forward contract as a cash flow hedge. HD uses the straight-line method to allocate a portion of the forward contract discount. What is the net impact on Year 2 net income?
6. HD designates the forward contract as a fair value hedge. What is the net impact on Year 1 net income?
7. HD designates the forward contract as a fair value hedge. What is the net impact on Year 2 net income?