Question

Brandlin Company of Anaheim, California, purchases materials from a foreign supplier on December 1, 2017 with payment of 17000 korunas to be made on March 1, 2018. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2017 Brandlin enters into a forward contract to purchase 17.000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Date December 1, 2017 December 31, 2017 March 1, 2018 Spot Rate $ 3.5e 3.5e 3.75 Forward Rate (to March 1, 2018) $ 3.575 3.700 N/A Brandlin's incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at December 31. a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency payable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in US dollars. a-2. Assuming that the purchased parts became a part of the cost of goods sold in 2017, what is the impact on 2017 net income? a-3. What is the impact on 2018 net income? a-4. What is the impact on net income over the two accounting periods?

this is the queston, a-2, a-3, a-4 cant figure out

Answer 1

If the we assume the purchase part become a part of cost of goods sold of 2017 then profit will decrease of 17,000 karunas as cost is increasing .

and 2018 income will increase by 17,000 karunas .

There will be a impact of 17,000 in both year net income.