On December 1, 2017, Ringling Company (a U. S.-based company) entered into a three month forward contract to purchase 1,000,000 pesos on March 1, 2018. The following U. S. dollar per peso exchange rates apply:
Forward Rate
Date Spot Rate (to March 1, 2018)
1-Dec-17 $0.04 $0.05
31-Dec-17 0.046 0.049
1-Mar-18 0.05 N/A
Ringling's incremental borrowing rate is 16 percent. The present value factor for two months at an annual interest rate of 16 percent (1 percent per month) is 0.9739. Which of the following correctly describes the manner in which Ringling Company will report the forward contract on its December 31, 2017, balance sheet
Which of the following correctly describes the manner in which Ringling Company will report the forward contract on its December 31, 2017 balance sheet?
a. As an asset in the amount of $1,960.60.
b. As an asset in the amount of $2,940.90.
c. As a liability in the amount of $980.30.
d. As a liability in the amount of $2,940.90.
Answers: 1
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