The reported balance in the unrealized gain or loss (URGL) for forward contract
ID: 2403082 • Letter: T
Question
The reported balance in the unrealized gain or loss (URGL) for forward contract account on its 2010 balance sheet should be
Question 12 options:
$0
$6,000
$2,000
$4,000
show work
$0
$6,000
$2,000
$4,000
show work
On November 10, 2009, King Co. sold inventory to a customer in a foreign country. King agreed to accept local currency uits CU) in full payment for this inventory. Payment was to be made on Feb 1, 2010. On December 1,2009, King entered into a forward contract wherein the total payment to be received would be delivered to a currency broker in two months Additional information is as follows Total payment in local currency units (LCU) for the inventory 200,000 Date Nov. 10, 2009 Dec. 1.2009 Spot Rate Spot Rate 2-Month Forward Rate Spot Rate 1-Month Forward Rate Spot Rate 0.26 S0.24 0.22 S0.20 S0.18 0.16 Dec. 31, 2009 Feb. 1,2010 The present value factor for one month based on the company's borrowing rate is Assume this hedge is designated as a cash low hedge, what items relating to this transaction should the company report on its 2009 and 2010 financial statements? 0.9901Explanation / Answer
For the reported balance in the unrealized gain or loss (URGL) for forward contact account, the rates prevailing as on Dec 31, 2009 is relevant. The spot rate is $0.2 and the forward rate is $0.18.
So, the unrealized loss on the transaction is ( 0.2 - 0.18 ) * 200000 = $ 4000.
Hence the correct answer is -
(D) $4000