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Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2015, with payment of 27,000 korunas to be received on March 1, 2016. Brandlin enters into a forward contract on December 1, 2015, to sell 27,000 korunas on March 1, 2016. Relevant exchange rates for the koruna on various dates 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 | ||
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Brandlin’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at December 31. |
| a-1. |
Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
| a-2. |
What is the impact on 2015 net income? (Do not round intermediate calculations.) |
| a-3. |
What is the impact on 2016 net income? (Do not round intermediate calculations.) |
| a-4. |
What is the impact on net income over the two accounting periods? (Do not round intermediate calculations.) |
| b-1. |
Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
|
| b-2. |
What is the impact on 2015 net income? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
| b-3. |
What is the impact on 2016 net income? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
| b-4. |
What is the impact on net income over the two accounting periods? (Do not round intermediate calculations.) |
In: Accounting
| Joshua & White Technologies: December 31 Balance Sheets | ||||
| (Thousands of Dollars) | ||||
| Assets | 2016 | 2015 | ||
| Cash and cash equivalents | $21,000 | $20,000 | ||
| Short-term investments | 3,759 | 3,240 | ||
| Accounts Receivable | 52,500 | 48,000 | ||
| Inventories | 84,000 | 56,000 | ||
| Total current assets | $161,259 | $127,240 | ||
| Net fixed assets | 218,400 | 200,000 | ||
| Total assets | $379,659 | $327,240 | ||
| Liabilities and equity | ||||
| Accounts payable | $33,600 | $32,000 | ||
| Accruals | 12,600 | 12,000 | ||
| Notes payable | 19,929 | 6,480 | ||
| Total current liabilities | $66,129 | $50,480 | ||
| Long-term debt | 67,662 | 58,320 | ||
| Total liabilities | $133,791 | $108,800 | ||
| Common stock | 183,793 | 178,440 | ||
| Retained Earnings | 62,075 | 40,000 | ||
| Total common equity | $245,868 | $218,440 | ||
| Total liabilities and equity | $379,659 | $327,240 | ||
| Joshua & White Technologies December 31 Income Statements | ||||
| (Thousands of Dollars) | ||||
| 2016 | 2015 | |||
| Sales | $420,000 | $400,000 | ||
| COGS except excluding depr. and amort. | 300,000 | 298,000 | ||
| Depreciation and Amortization | 19,660 | 18,000 | ||
| Other operating expenses | 27,600 | 22,000 | ||
| EBIT | $72,740 | $62,000 | ||
| Interest Expense | 5,740 | 4,460 | ||
| EBT | $67,000 | $57,540 | ||
| Taxes (40%) | 26,800 | 23,016 | ||
| Net Income | $40,200 | $34,524 | ||
| Common dividends | $18,125 | $17,262 | ||
| Addition to retained earnings | $22,075 | $17,262 | ||
| Other Data | 2016 | 2015 | ||
| Year-end Stock Price | $90.00 | $96.00 | ||
| # of shares (Thousands) | 4,052 | 4,000 | ||
| Lease payment (Thousands of Dollars) | $20,000 | $20,000 | ||
| Sinking fund payment (Thousands of Dollars) | $5,000 | $5,000 | ||
| f. Perform a percent change analysis. What does this tell you about the change in profitability | ||||||
| and asset utilization? | ||||||
| Percent Change Balance Sheets | Base | |||||
| Assets | 2016 | 2015 | ||||
| Cash and cash equivalents | ||||||
| Short-term investments | ||||||
| Accounts Receivable | ||||||
| Inventories | ||||||
| Total current assets | ||||||
| Net fixed assets | ||||||
| Total assets | ||||||
| Base | ||||||
| Liabilities and equity | 2016 | 2015 | ||||
| Accounts payable | ||||||
| Accruals | ||||||
| Notes payable | ||||||
| Total current liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities | ||||||
| Common stock | ||||||
| Retained Earnings | ||||||
| Total common equity | ||||||
| Total liabilities and equity | ||||||
| Base | ||||||
| Percent Change Income Statements | 2016 | 2015 | ||||
| Sales | ||||||
| COGS except excluding depr. and amort. | ||||||
| Depreciation and Amortization | ||||||
| Other operating expenses | ||||||
| EBIT | ||||||
| Interest Expense | ||||||
| EBT | ||||||
| Taxes (40%) | ||||||
| Net Income | ||||||
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