Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied: Assuming a forward contract was entered into on December 16, what would be the net impact on Jackson's 2021 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge. The present value for one half-month at 12% is 0.9950.
A) $800 (gain).
B) $1,594 (loss).
C) $1,594 (gain).
D) $794 (loss).
E) $794 (gain).

Question

Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied:  Assuming a forward contract was entered into on December 16, what would be the net impact on Jackson's 2021 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge. The present value for one half-month at 12% is 0.9950.
A) $800 (gain). 
B) $1,594 (loss). 
C) $1,594 (gain). 
D) $794 (loss). 
E) $794 (gain).

Quizplus · Accepted Answer

The Answer is E