In: Accounting
Use the following information on the U.S. dollar value of the euro.
Spot Rate | Forward Rate for April 30, 2021 Delivery | |
October 30, 2020 | $ 1.250 | $ 1.254 |
December 31, 2020 | 1.258 | 1.256 |
April 30, 2021 | 1.260 | 1.260 |
On October 30, 2020, a U.S. company forecasts that it will purchase
merchandise from an Italian supplier at the end of April 2021, in
the amount of €100,000, and will pay the supplier on delivery. On
October 30, the company enters a forward contract to buy €100,000
on April 30, 2021 and classifies it as a cash flow hedge of the
forecasted purchase. On April 30, 2021, the company receives the
merchandise, closes the forward contract and pays the supplier. The
company's accounting year ends December 31.
When the merchandise is sold by the company, what is the cost of
goods sold?
A. | $125,000 | |
B. | $126,600 | |
C. | $125,400 | |
D. | $126,000 |
On the date oct 30,2021 forward contract
Forward rate : $ 1.254
€100,000 = $125400
On dec 31,2020 ,forward rate 1.256
€100,000 = $ 125600
Net gain = 125600 -125400
= $ 200 other compensive income
On purchase date = the cost of purchase d cost of good sold is
30 april 2021 = $ 1.260
€100,000 = 126000