uestion: On November 1, Year 1, Alexandria Company sold merchandise to a foreign customer for 100,000 francs with payment to be received on April 30, Year 2. At the date of sale, Alexandria Company entered into a six-month forward contract to sell 100,000 francs. The forward contract is properly designated as a cash flow hedge of a foreign currency receivable. Relevant exchange rates for the franc are:
Forward Rate
Date Spot Rate (to April 30, Year 2)
November 1, Year 1 $0.23 $0.22
December 31, Year 1 0.20 0.18
April 30, Year 2 0.19
Alexandria Company's incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610.
Required: Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract. What is the impact on net income in Year 1? What is the impact on net income in Year 2?