On April 1, Quality Corporation, a U

question 35

Multiple Choice

On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro, and Quality enters into a three-month forward contract cash flow hedge to sell 400,000 euros at a rate of $1.36. At the end of three months, the spot rate is $1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros. What are the effects on net income from these transactions?

• A) $8,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is delivered.
• B) $8,000 Discount Expense plus a $12,000 positive Adjustment to Net Income when the merchandise is delivered.
• C) $8,000 Discount Expense plus a $20,000 negative Adjustment to Net Income when the merchandise is delivered.
• D) $8,000 Discount Expense plus a $20,000 positive Adjustment to Net Income when the merchandise is delivered.
• E) $8,000 Discount Expense plus an $8,000 positive Adjustment to Net Income when the merchandise is delivered.

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Definitions:

Spiders

Arachnids with eight legs, typically silk-spinning, and known for their predatory lifestyle.

Organism

Any living entity, from single-celled microbes to multicellular plants and animals, capable of reproduction and response to stimuli.

Blood Fluke

A type of parasitic worm, belonging to the schistosomiasis family, that infects the blood vessels of the intestinal tract or urinary tract in humans.

Beef Tapeworm

A parasitic flatworm, Taenia saginata, which infects humans through consumption of undercooked or raw beef.