Consider the following information. 1. On September 1, 2021, a US firm contracts to buy equipment with an asking price of £100,000 from a firm in the U.K. The firm will take delivery and will pay for the equipment on March 1, 2022. 2. On that same day, September 1, 2021, the US firm enters into a forward contract to buy £100,000 for US$1.60/£ on March 1, 2022. 3. Spot rates and forward rates were quoted as follows: Spot Rate Forward Rate September 1, 2021 September 30, 2021 March 1, 2022 $1.59/£ $1.55/£ $1.57/£ $1.60/£ $1.53/£ 4. On March1, 2022, the payment of £100,000 was made to the supplier of the equipment.
Consider the following information. 1. On September 1, 2021, a US firm contracts to buy equipment with an asking price of £100,000 from a firm in the U.K. The firm will take delivery and will pay for the equipment on March 1, 2022. 2. On that same day, September 1, 2021, the US firm enters into a forward contract to buy £100,000 for US$1.60/£ on March 1, 2022. 3. Spot rates and forward rates were quoted as follows: Spot Rate Forward Rate September 1, 2021 September 30, 2021 March 1, 2022 $1.59/£ $1.55/£ $1.57/£ $1.60/£ $1.53/£ 4. On March1, 2022, the payment of £100,000 was made to the supplier of the equipment.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Prepare the transactions for the recognition of the actual purchase of the equipment and settlement of forward contract on March 1, 2022, to account for the forward contract, the firm’s commitment, and the transaction to buy the equipment.
Transcribed Image Text:Question 2
Consider the following information.
1. On September 1, 2021, a US firm contracts to buy equipment with an asking price of £100,000
from a firm in the U.K. The firm will take delivery and will pay for the equipment on March 1,
2022.
2. On that same day, September 1, 2021, the US firm enters into a forward contract to buy
£100,000 for US$1.60/£ on March 1, 2022.
3. Spot rates and forward rates were quoted as follows:
Spot Rate
$1.59/£
$1.55/£
$1.57/£
Forward Rate
September 1, 2021
September 30, 2021
$1.60/£
$1.53/£
March 1, 2022
On March1, 2022, the payment of £100,000 was made to the supplier of the equipment.
4.
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