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on march 1 pimlico corporation a u s 8211 based company expects to order merchandise 737977

On March 1, Pimlico Corporation (a U.S.–based company) expects to order merchandise from a supplier in Sweden in three months. On March 1, when the spot rate is $0.10 per Swedish krona, Pimlico enters into a forward contract to purchase 500,000 Swedish kroner at a three month forward rate of $0.12. At the end of three months, when the spot rate is $0.115 per Swedish krona, Pimlico orders and receives the merchandise, paying 500,000 kroner. What amount does Pimlico report in net income as a result of this cash flow hedge of a forecasted transaction?

a . $10,000 Premium Expense plus a $7,500 positive Adjustment to Net Income when the mer chandise is purchased.

b . $10,000 Discount Expense plus a $5,000 positive Adjustment to Net Income when the mer chandise is purchased.

c . $2,500 Premium Expense plus a $5,000 negative Adjustment to Net Income when the mer chandise is purchased.

d. $2,500 Premium Expense plus a $2,500 positive Adjustment to Net Income when the mer chandise is purchased.

a.

$600.

b.

$1,000.

c.

$2,000.

d.

$4,400.

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