I answered this right, 3000
I was thinking: this is a FV hedge -> gain goes to I/S. Rate changed from .90 to .93 so the gain is 3000.
The answer by Roger confused me:
Correct! Since the forward contract was entered into to hedge a liability that is payable in March, it would be accounted for as a cash flow hedge. At December 31, Imp has a contract to purchase 100,000 LCUs on March 12 for $.90 per LCU when the expected exchange rate is $.93 per LCU. As a result, Imp will gain $.03 per LCU and the derivative would be worth (100,000 x $.03) $3,000. The derivative would be adjusted to fair value but any again or loss would be recognized in comprehensive income until such time as the effect on the hedged item. In this case, the hedged item is a payable related to the purchase of inventory, which would have been originally recorded at the spot rate in November, which is not given. At December 31, year 11, the spot rate has increased to $.98, requiring that the liability be increased to $98,000 resulting in a loss. As a result, the gain on the cash flow derivative would be recognized in income in the same period.
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