Recording sales transactions qualifying as foreign-currency firm commitmentsAssume our U.S.-based company's functional currency is the $US and it enters into a "firm commitment" with a Portugal-based retailer on November 15, 2018. The firm commitment requires our company to sell 40,000 units of an inventory itemcosting €20 each to the Portuguese company. Our company is contractually committed to ship the inventory (i.e., titletransfers) on February 15, 2019, with payment in Euros on the same date. Our company does recurring business with thePortuguese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume,on November 15, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (forsettlement on February 15, 2019) to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a fair valuehedge. The relevant exchange rates and related balances for the period from November 15, 2018, to February 15, 2019, areas follows:DateNovember 15, 2018December 31, 2018February 15, 2019Spot Rate Forward Rate(SUS - €1) (SUS - €1)1.451.401.401.30O1.381.30Derivative-Forwardb. $1,040,000 *c. $1,120,000d. $1,160,000FVb Change in FVaFor settlement on February 15, 2019b Ignore discounting in the computation of fair values.$16,000 $16,00080,00064,000On November 15, 2018, what amount should be recognized in "Sales"?Select one:a. $0

Spot Price is the current (today) rate in the market and Forward Price is the price in the future in…

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Business

Accounting

Recording sales transactions qualifying as foreign-currency firm commitments

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 21E

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