Suppose a company intends to acquire an asset in the future. The asset's forward price is $200,000. It hedges its trans

Business, Finance, Economics, Accounting, Operations Management, Computer Science, Electrical Engineering, Mechanical Engineering, Civil Engineering, Chemical Engineering, Algebra, Precalculus, Statistics and Probabilty, Advanced Math, Physics, Chemistry, Biology, Nursing, Psychology, Certifications, Tests, Prep, and more.
Post Reply
answerhappygod
Site Admin
Posts: 899603
Joined: Mon Aug 02, 2021 8:13 am

Suppose a company intends to acquire an asset in the future. The asset's forward price is $200,000. It hedges its trans

Post by answerhappygod »

Suppose a company intends to acquire an asset in the future. Theasset's forward price is $200,000. It hedges its transactionby purchasing a $205,000 forward contract. The forward contractincurs a paper loss of $15,000 throughout the hedging period. Atthe completion of the hedge, the forward contract has lost $20,000in cumulative value and the asset is $20,000 less expensive.Describe the accounting entries that would be made and the impacton the firm's earnings and balance sheet. What would change if itwere not an efficient hedge?
Join a community of subject matter experts. Register for FREE to view solutions, replies, and use search function. Request answer by replying!
Top
Post Reply

Return to “Archived Questions & Answers”