On December 1, 20X1, Sycamore Company acquired a 90-day speculative forward contract to sell €135,000 at a forward rate of €1 = $0.48. The rates are as follows:
Forward Rate
Date Spot Rate for March 1
December 1, 20X1 €1=$0.50 €1=$0.48
December 31, 20X1 €1= 0.49 €1= 0.46
March 1, 20X2 €1= 0.47
Required:
a. Determine the effects of this speculation on 20X1 income before income taxes.
Speculation
b. Determine the effects of this speculation on 20X2 income before income taxes.
Speculation