HD designates the forward contract as cash flow hedge

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Reference no: EM132028957

HD Company sells goods to a Spanish customer at a price of 1 million euros. HD shipped good to its customer on December 1, Year 1. The payment was received on March 1, Year 2. On December 1, Year1, HD signs a contract with First National Bank to deliver 1,000,000 euros in three months in exchange for $1,485,000

Date - spot rate - forward rate - Fair Value of Forward Contract

12/1/ Year1 $1.509 $1.485

12/31/Year1 $1.485 $1.482

3/1/Year2 $1.470 $1.470

1. HD designates the forward contract as a cash flow hedge. What is the ending balance of accumulated other comprehensive income at the end of Year1?

2. HD designates the forward contract as a cash flow hedge. HD uses the straight-line method to allocate a portion of the forward contract discount. What is the net impact on Year 1 net income?

3. HD designates the forward contract as a cash flow hedge. What is the ending balance of accounts receivable at the end of Year1?

4. HD designates the forward contract as a cash flow hedge. What is the ending balance of accumulated other comprehensive income at the end of Year2?

5. HD designates the forward contract as a cash flow hedge. HD uses the straight-line method to allocate a portion of the forward contract discount. What is the net impact on Year 2 net income?

6. HD designates the forward contract as a fair value hedge. What is the net impact on Year 1 net income?

7. HD designates the forward contract as a fair value hedge. What is the net impact on Year 2 net income?

Reference no: EM132028957

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