Balance sheet date (12/31/08) March 1, 2009 0.0949 0.0947 4. On March 1, the equipment was sold for 1,000,000 pesos. The cost of the equipment was $40,000. Required: Prepare all journal entries needed on December 1, December 31, and March 1 to account for the forward contract, the firm commitment, and the transaction to sell the equipment. 0.0944
Balance sheet date (12/31/08) March 1, 2009 0.0949 0.0947 4. On March 1, the equipment was sold for 1,000,000 pesos. The cost of the equipment was $40,000. Required: Prepare all journal entries needed on December 1, December 31, and March 1 to account for the forward contract, the firm commitment, and the transaction to sell the equipment. 0.0944
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Exercise 12-14 Page: 673
Fair Value Hedge
Consider the following information:
1. On December 1, 2008, a U.S. firm contracts to sell equipment (with an asking price of 1,000,000 pesos) in
Mexico. The firm will take delivery and will pay for the equipment on March 1, 2009.
Illustration-Forward Contract
2. On December 1, 2008, the company enters into a forward contract to sell 1,000,000 pesos for $0.0948 on
March 1, 2009.
3. Spot rates and the forward rates for March 1, 2009, settlement were as follows (dollars per peso):
Forward Rate
for 3/1/09
$0.0948
0.0944
Spot Rate
December 1, 2008
$0.0954
0.0949
Balance sheet date (12/31/08)
March 1, 2009
0.0947
4. On March 1, the equipment was sold for 1,000,000 pesos. The cost of the equipment was $40,000.
Required:
Prepare all journal entries needed on December 1, December 31, and March 1 to account for the forward
contract, the firm commitment, and the transaction to sell the equipment.
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