On July 10, a U

Multiple Choice

On July 10, a U.S. company with a December 31 year-end enters a forward contract that locks in the purchase price of won, for delivery on August 15. The forward contract hedges a firm commitment to buy merchandise from a supplier in Korea, with payment denominated in won. The purchase is made on August 1, and payment is made on August 15. The U.S. company sells the merchandise in September. Where is the value of the firm commitment to purchase reported in the year-end financial statements?

A) Asset or liability on the balance sheet
B) Increase or decrease in other comprehensive income
C) Adjustment to sales revenue
D) Adjustment to cost of goods sold