Amazing Corporation, a U The Discount Factor Corresponding to the Company's Incremental Borrowing Rate

question 47

Multiple Choice

Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 20x1 for £100,000 with payment required on April 1, 20x2. Relevant exchange rates are:
$\begin{array}{lll} & \text { Spot rate } & \text { Forward rate (to } 4 / 1 / \mathrm{x} 2) \\\text { October } 1,20 \times 1 & \$ 1.87 & \$ 1.85 \\\text { December } 31,20 \times 1 & \$ 1.85 & \$ 1.84 \\\text { April 1.20x2 } & \$ 1.90 &\end{array}$
The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95.
-Assume that Amazing Corporation enters a forward contract on October 1, 20x1 to sell £100,000 six months hence, on April 1, 20x2.How should Amazing Corporation report the forward contract on its December 31, 20x1 financial statements?

• A)Asset $1,950
• B)Liability $1,950
• C)Asset $1,000
• D)Asset $950

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