Income Statement effect of transactions committments & hedging Income statemen

Income Statement effect of transactions committments & hedging

Income statement effect of transactions commitments& hedging. Clayton industries sells medical equipment worldwide. On Mar 1 of
the current year the company sold equipment with a cost of $160000 to a foreign customer for 200000 euros payable in 60 days. At the same time the
company purchased a forward contract to sell 200000 euros in 60 days. In another transaction the company committed on Mar 15 to deliver equipment
in May to a foreign customer in exchange for 300000 euros payble in June. This equipment is anticipated to have a completed cost of $210000. On Mar
15 the company hedged the commitment by acquiring a forward contract to sell 300000 in 90 days. Changes in the value of the commitment are based on
changes in forward rates & all discounting is based on a 6% discount rate.

Various spot and forward rates for the euro are as follows:

Spot rate Forward rate fo 60 days from Mar 1 Forward rate for 90 days from Mar 15

Mar 1 $1.180 $1.181

Mar 15 1.181 1.180 $ 1.179

Mar 31 1.179 1.178 1.177

Apr 30 1.175 1.174

For individual months of Mar & Apr calculate the income statement effects of:

1. the foreign currency transaction

2. the hedge on the foreign currency transaction.

3. the foreign currency commitment.

4. the hedge on the foregin currency commitment.