The Discount or Premium on a Forward Contract Entered into as a Hedge

question 6

Multiple Choice

The discount or premium on a forward contract entered into as a hedge of an exposed asset or liability position should be:

• A) included as a separate component of stockholders' equity.
• B) amortized over the life of the forward contract.
• C) deferred and included in the measurement of related foreign currency transaction.
• D) none of these.

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Definitions:

Sales Potential

The estimated maximum total sales revenue of a product or service in a specific market over a set period.

EBIAT

Earnings Before Interest After Taxes, a measure of a company's profitability that excludes interest expenses but includes taxes.

Amortization

The process of spreading out a loan into a series of fixed payments over time, accounting for both principal and interest.

Capital Expenditures

Funds spent by a company to acquire or upgrade physical assets such as equipment or property.