Use the following to answer questions:
On November 1,20x1 Zamfir Company,a U.S.corporation,purchased minerals from a Russian company for 2,000,000 rubles,payable in 3 months. The relevant exchange rates between the U.S.and Russian currencies are given: The company's incremental borrowing rate provides a discount rate of 0.975 for three months.
-Assume that on November 1,20x1 Zamfir Company enters a forward contract to buy 2,000,000 rubles on February 1,20x2. How should Zamfir report the forward contract on December 31,20x1?

Question

Use the following to answer questions:
On November 1,20x1 Zamfir Company,a U.S.corporation,purchased minerals from a Russian company for 2,000,000 rubles,payable in 3 months. The relevant exchange rates between the U.S.and Russian currencies are given:  The company's incremental borrowing rate provides a discount rate of 0.975 for three months.
-Assume that on November 1,20x1 Zamfir Company enters a forward contract to buy 2,000,000 rubles on February 1,20x2. How should Zamfir report the forward contract on December 31,20x1?

Quizplus · Accepted Answer

Zamfir should report the forward contract at its fair value on December 31, 20x1. The fair value is determined by the difference between the contracted forward rate and the current forward rate for the remaining period, multiplied by the notional amount. The $7,800 asset indicates that the forward contract has a positive fair value at that date.

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