Consider the following information. 1. On September 1, 2022, 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, 2023. 2. On that same day, September 1, 2022, the US firm enters into a forward contract to buy £100,000 for US$1.60/£ on March 1, 2023. 3. Spot rates and forward rates were quoted as follows: Spot Rate Forward Rate September 1, 2022 $1.59/£ $1.60/£ September 30, 2022 $1.55/£ $1.53/£ March 1, 2023 $1.57/£ 4. On March 1, 2022, the payment of £100,000 was made to the supplier of the equipment. Required: a. Prepare the journal entries needed for the forward contract transaction done on September 1, 2022. b. Prepare the journal entries needed for the transactions to track the forward contract on September 30, 2022, the financial year-end of the US firm. c. Prepare the transactions for the recognition of the actual purchase of the equipment and settlement of forward contract on March 1, 2023, to account for the forward contract, the firm’s commitment, and the transaction to buy the equipment.
Consider the following information.
1. On September 1, 2022, 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, 2023.
2. On that same day, September 1, 2022, the US firm enters into a forward contract to buy
£100,000 for US$1.60/£ on March 1, 2023.
3. Spot rates and forward rates were quoted as follows:
Spot Rate Forward Rate
September 1, 2022 $1.59/£ $1.60/£
September 30, 2022 $1.55/£ $1.53/£
March 1, 2023 $1.57/£
4. On March 1, 2022, the payment of £100,000 was made to the supplier of the equipment.
Required:
a. Prepare the
September 1, 2022.
b. Prepare the journal entries needed for the transactions to track the forward contract on
September 30, 2022, the financial year-end of the US firm.
c. Prepare the transactions for the recognition of the actual purchase of the equipment and
settlement of forward contract on March 1, 2023, to account for the forward contract,
the firm’s commitment, and the transaction to buy the equipment.
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