Assuming a forward contract was entered into on December 16, what would be the net impact on Car Corp.'s 2018 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge.The present value for one half-month at 12% is .9950.
A) $ 700 (gain).
B) $ 700 (loss).
C) $ 995 (gain).
D) $ 300 (loss).
E) $ 298 (gain).

Question

Quizplus · Accepted Answer

The net impact on Car Corp.'s 2018 income statement related to this transaction would be a $298 gain. This is because the fair value of the forward contract increased by $298 during the period, and this gain is recognized on the income statement.

Assuming a Forward Contract Was Entered into on December 16