On March 1, 2013, Eddie Ltd. issued a purchase order to Liu Inc. to acquire a crane for $400,000 SGD. On the same day, Eddie entered into a forward contract to receive $400,000 SGD on July 31, 2013. The crane was delivered on June 1, 2013 and payment was made July 31, 2013. Eddie has an April 30 year-end. The following information has been provided: $\begin{array}{|l|c|c|}
\hline\text { Date } & \text { Spot Rate } & \frac{\text { Forward rate to July 31 }}{2013} \\hline \text { March } 1,2013 & .7686 & .7810 \
\hline \text { Apri1 } 30,2013 & .7702 & .7818 \
\hline \text { June } 1,2013 & .7940 & .7985 \
\hline \text { July } 31,2013 & .7995 & \mathrm{n} / \mathrm{a} \
\hline
\end{array}$ Assume that the transaction qualifies as a cash flow hedge. On March 1, at what amount should the forward contract be reported?

Question

Quizplus · Accepted Answer

The forward contract should be reported at a value of $0 on March 1, because it is the date the contract was entered into, and at inception, a forward contract has no intrinsic value.

On March 1, 2013, Eddie Ltd Assume That the Transaction Qualifies as a Cash Flow Hedge