On November 2,20X9,Henry Company Purchased a Machine for 100,000 Swiss

question 15

Multiple Choice

On November 2,20X9,Henry Company purchased a machine for 100,000 Swiss francs (CHF) with payment requirement on March 30,20X10.To eliminate the risk of foreign exchange losses on this payable,Henry entered into a forward exchange contract on November 3,20X9 to receive CHF 100,000 at a forward rate of CHF1 = $2 on March 30,20X10.The spot rate was CHF1 = $1.95 on November 2,20X9 and CHF1 = $1.97 on December 1,20X9.How should the premium or discount on the forward exchange contract be accounted for?

• A)It should be expensed on the inception date of the forward exchange contract.
• B)It should be expensed over the 5-month term of the forward exchange contract.
• C)It should be expensed on the maturity date of the forward exchange contract.
• D)It should be added to the cost of the machine.

---

Definitions:

Bleach

A chemical compound used for whitening or disinfecting, often comprised of sodium hypochlorite.

Outer Canthus

The external corner of the eye where the upper and lower eyelids meet.

Lower Conjunctival Sac

The space between the lower eyelid and the surface of the eye, often where eye drops are applied.

Protective Mechanisms

Biological or behavioral adaptations that help organisms survive by defending against threats or reducing harm.