On december 1 2011 barnum company a u.s. -based on company, Ask an Expert

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On December 1, 2011, Barnum Company (a U.S. -based on company) entered into a three-month forward contract to purchase 1,000,000 ringgits on March 1, 2012. The following U.S. dollar per ringgit exchange rates apply:

Date Spot Rate Forward Rate (to March 1, 2012)
Dec 1, 2011 $0.44 $0.042
Dec 31, 2011 $0.040 0.037
March 1, 2012 $0.038 N/A

Barnum's incremental borrowing rate is 12 percent. The PV factor for two months at annual interest rate of 12 prcent (1 percent per month) is 0.9803

Which of the following correclthy describes themanner in which Barnum Company will report the forward contract on its December 31, 2011, balance sheet?

a. An asset in the amount of $1,960.60
b. An asset in the amount of $3,921.20
c. Liability in the amoun t of $6,862.10
d. Liability in the amount of $4,901.50

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9416143

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