Reference no: EM132949265

A corporation with a balance sheet date of December 31 has a foreign long-term liability that is not covered by a foreign exchange contract. The foreign currency amount was converted at the closing rate on December 31, 2021, and is shown in the accounting records at the Australian Dollars (AUD) 2.0 million.

• The local currency sharply decreased against the US dollar on February 27, 2022. On this date, the management decided to decrease further risk by using a foreign exchange contract, because of which the debt was limited to AUD 6.0 million. If this situation were to apply at the balance sheet date, it would result in the corporation's liabilities exceeding the fair value of its assets.

Required:

Problem 1: Explain how the above event should be disclosed in face and note of the December 31, 2021 financial statements.