How the firm’s earnings and balance sheet would be affected

Reference no: EM131291247

Suppose that a firm plans to purchase an asset at a future date. The forward price of the asset is $200,000. It hedges that purchase by buying a forward contract at a price of $205,000. During the hedging period, the forward contract incurs a paper loss of $15,000. At the end of the hedge, the forward contract has lost an accumulated value of $20,000 and the asset is $20,000 cheaper. Explain what accounting entries would be done and how the firm's earnings and balance sheet would be affected. What would be different if it were not an effective hedge?

Reference no: EM131291247

Questions Cloud

Discuss five problems with regard to application of fas 133 : Identify and discuss five problems with regard to the application of FAS 133

Calculate expected cost for each stocking amount : What is total cost (holding cost + ordering cost + material cost) if they buy at $4.50 per case at the minimum total cost point on $4.50 curve (EOQ point for $4.50)?

Explain what accounting entries would be done : Explain what accounting entries would be done and how the firm's earnings and balance sheet would be affected.

Create an operations plan for your bamboo detox tea company : Create an operations plan for your Bamboo Detox Tea company using the template in the text as a guide. Extract appropriate information from the NAB Company portfolio, where applicable.

How the firm’s earnings and balance sheet would be affected : Explain what accounting entries would be done and how the firm's earnings and balance sheet would be affected. What would be different if it were not an effective hedge?

What is meant by independent risk monitoring : Explain the advantages for senior management having detailed, written policies for financial risk management? Define and explain what is meant by independent risk monitoring. How can senior management improve independent risk monitoring?

What is the primary purpose of the futures markets : What is the primary purpose of the futures markets? A futures contract is a binding agreement. (true or false) ? The corn trader mentioned previously was successful because he or she bought the low and sold the high of the move. (true or false)

Compare six sigma and philip crosbys quality is free book : Comparing and contrasting any pair from among these formal quality improvement programs: Joseph Juran's Trilogy program, Edward Deming's Quality program, Six Sigma, and Philip Crosby's Quality is Free book.

What is the definition of basis : The corn trader mentioned previously was successful because he or she bought the low and sold the high of the move. (true or false)

User Account

All Pages