On December 1, 2021, King Co

question 73

Essay

On December 1, 2021, King Co. sold inventory to a customer in a foreign country. King agreed to accept 96,000 local currency units (LCU)in full payment for this inventory. Payment was to be made on February 1, 2022. On the date of sale, King entered into a forward exchange contract wherein 96,000 LCU would be delivered to a currency broker in two months. The two-month forward exchange rate on that date was 1 LCU = $0.30. Any contract discount or premium is amortized using the straight-line method. The spot rates and forward rates on various dates were as follows:
The company's borrowing rate is 12%. The present value factor for one month is 0.9901.(A.)Assume this hedge is designated as a cash flow hedge. Prepare the journal entries relating to the transaction and the forward contract.(B.)Compute the effect on 2021 net income.(C.)Compute the effect on 2022 net income.

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Definitions:

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of values.

NCE

Normal Curve Equivalent, a standard score used in educational testing to compare individual performance across a normalized distribution.

Standard Deviation

A statistical measurement that quantifies the amount of variation or dispersion of a set of values, showing how much each value in the set differs from the mean.

Grade Equivalent

A measure that describes a student's performance in comparison to the average performance of students in a specific grade level.