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What is the amount of the exchange loss or gain recognized

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Reference no: EM132973521

Valley Enterprises purchases inventory of 1,000,000 foreign currency units (FCUs) from a foreign supplier on August 13 with payment due on November 1. Management of Valley Enterprises immediately enters into a forward contract to hedge this transaction. Valley prepares quarterly financial statements with a December 31 year-end.

The relevant exchange rates and forward contract fair values are as follows:

Nov. 1 Forward Contract

Date Spot Rate Forward Rate Fair Value____

Aug. 13 P1.116 P1.120 P 0

Sept. 30 P1.129 P1.126 P 6,000

Nov. 1 P1.138 P1.138 P18,000

Problem 1: What is the balance in the forward contract account on September 30?

Problem 2: What is the amount of the exchange loss or gain recognized with respect to the forward contract on September 30?

Problem 3: What is the balance in the forward contract account on November 1?

Problem 4: What is the amount of the exchange loss or gain recognized with respect to the forward contract on November 1?

Problem 5: What is the net increase or decrease in cash flow from having entered into this forward contract hedge?

Problem 6: What is the amount of premium or discount on forward contract?

Reference no: EM132973521

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