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a. Prepare the journal entries to record the purchase and all adjustments required for the accounts payable and forward contract at October 20, 2018 December 31, 2018, and January 20, 2019. Note: If no entry is required, select "No entry" as your answers under Description and leave the debit and credit answers blank (zero). Hedged Transaction Date 10/20/18 12/31/18 1/20/19 Description To record change in SUS value. To record the payment # : : : ÷ = : ÷ Debit 0 0 0 0 0 0 O 0 Credit 0 DO 0 0 0 OO

a. Prepare the journal entries to record the purchase and all adjustments required for the accounts payable and forward contract at October 20, 2018 December 31, 2018, and January 20, 2019. Note: If no entry is required, select "No entry" as your answers under Description and leave the debit and credit answers blank (zero). Hedged Transaction Date 10/20/18 12/31/18 1/20/19 Description To record change in SUS value. To record the payment # : : : ÷ = : ÷ Debit 0 0 0 0 0 0 O 0 Credit 0 DO 0 0 0 OO

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Forward exchange contract designated as a fair value hedge of a foreign-currency-denominated accounts payable, strengthening $US On October 20, 2018, our company purchased from a company located in Slovenia 100.000 units of a product at a purchase price of €7.00 per unit. Our company is required to pay for the merchandise in Euros (€). The exchange rate on the date of purchase is $1.48:€1, and the due date for our payment is January 20, 2019. To mitigate the risk of exchange rate fluctuations between the purchase date and the payment date, on October 20, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to buy €700,000 on January 20, 2019, while we lock in the $US we will pay for the Euros on that date at the forward rate of $1.45:€1 (i.e.. the forward rate on October 20, 2018, for settlement on January 20, 2019). Assume this derivative qualifies as a fair value hedge, and our company's functional currency and reporting currency is the $US. The following table includes the spot rates, forward rates, and related values of the accounts payable and forward contract on October 20, 2018, December 31, 2018, and January 20, 2019. When computing fair values, ignore discounting. Date October 20, 2018 December 31, 2018 January 20, 2019 Date 10/20/18 12/31/18 FC Accounts Payable Spot Rate Carrying (SUS = €1) Value 1.48 $1,036,000) 1.41 (987,000) 1.38 (966,000) * For settlement on January 20, 2019 b Ignore discounting in the computation of fair values. 1/20/19 a. Prepare the journal entries to record the purchase and all adjustments required for the accounts payable and forward contract at October 20, 2018, December 31, 2018, and January 20, 2019. Note: If no entry is required, select "No entry" as your answers under Description and leave the debit and credit answers blank (zero). Hedged Transaction Description To record change in SUS value. To record the payment Forward Change in Rate FV Asset Change Carry Val. (SUS - €1) (Liability) in FV 1.45 1.40 $(35,000) $(35,000) 1.38 (49,000) (14000) $49,000 21,000 + + : A + A : + + Debit 0 0 0 0 0 Derivative-Forward 0 0 0 Credit 0 0 0 0 0 0 0 0
Transcribed Image Text:Forward exchange contract designated as a fair value hedge of a foreign-currency-denominated accounts payable, strengthening $US On October 20, 2018, our company purchased from a company located in Slovenia 100.000 units of a product at a purchase price of €7.00 per unit. Our company is required to pay for the merchandise in Euros (€). The exchange rate on the date of purchase is $1.48:€1, and the due date for our payment is January 20, 2019. To mitigate the risk of exchange rate fluctuations between the purchase date and the payment date, on October 20, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to buy €700,000 on January 20, 2019, while we lock in the $US we will pay for the Euros on that date at the forward rate of $1.45:€1 (i.e.. the forward rate on October 20, 2018, for settlement on January 20, 2019). Assume this derivative qualifies as a fair value hedge, and our company's functional currency and reporting currency is the $US. The following table includes the spot rates, forward rates, and related values of the accounts payable and forward contract on October 20, 2018, December 31, 2018, and January 20, 2019. When computing fair values, ignore discounting. Date October 20, 2018 December 31, 2018 January 20, 2019 Date 10/20/18 12/31/18 FC Accounts Payable Spot Rate Carrying (SUS = €1) Value 1.48 $1,036,000) 1.41 (987,000) 1.38 (966,000) * For settlement on January 20, 2019 b Ignore discounting in the computation of fair values. 1/20/19 a. Prepare the journal entries to record the purchase and all adjustments required for the accounts payable and forward contract at October 20, 2018, December 31, 2018, and January 20, 2019. Note: If no entry is required, select "No entry" as your answers under Description and leave the debit and credit answers blank (zero). Hedged Transaction Description To record change in SUS value. To record the payment Forward Change in Rate FV Asset Change Carry Val. (SUS - €1) (Liability) in FV 1.45 1.40 $(35,000) $(35,000) 1.38 (49,000) (14000) $49,000 21,000 + + : A + A : + + Debit 0 0 0 0 0 Derivative-Forward 0 0 0 Credit 0 0 0 0 0 0 0 0
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