Onoly Corporation (a U.S.manufacturer)sold parts to its customer in Hong Kong on December 8, 2011 with payment of 500,000 Hong Kong Dollars (HKD)to be received in sixty days on February 6, 2012.Onoly has a December 31 year end.The following exchange rates apply:
Required:
1.Assuming no forward contract is taken, what is the amount of foreign currency exchange gain or loss that would be recorded in 2011, and in 2012?
2.Assuming a 60-day forward contract is taken on December 8 with the intent of hedging this foreign currency transaction, and that this hedge is properly accounted for as a cash flow hedge, what is the net effect on income to be recorded in 2011, and in 2012?

Question

Onoly Corporation (a U.S.manufacturer)sold parts to its customer in Hong Kong on December 8, 2011 with payment of 500,000 Hong Kong Dollars (HKD)to be received in sixty days on February 6, 2012.Onoly has a December 31 year end.The following exchange rates apply:
  Required:
1.Assuming no forward contract is taken, what is the amount of foreign currency exchange gain or loss that would be recorded in 2011, and in 2012?
2.Assuming a 60-day forward contract is taken on December 8 with the intent of hedging this foreign currency transaction, and that this hedge is properly accounted for as a cash flow hedge, what is the net effect on income to be recorded in 2011, and in 2012?

Quizplus · Accepted Answer

The Answer of Onoly Corporation (a U.S.manufacturer)sold parts to its customer in Hong Kong on December 8, 2011 with payment of 500,000 Hong Kong Dollars (HKD)to be received in sixty days on February 6, 2012.Onoly has a December 31 year end.The following exchange rates apply:
  Required:
1.Assuming no forward contract is taken, what is the amount of foreign currency exchange gain or loss that would be recorded in 2011, and in 2012?
2.Assuming a 60-day forward contract is taken on December 8 with the intent of hedging this foreign currency transaction, and that this hedge is properly accounted for as a cash flow hedge, what is the net effect on income to be recorded in 2011, and in 2012?

Onoly Corporation (A U