Constellation Brands, a U.S. company, purchases merchandise from a German supplier on a regular basis. On April 1, 2016, Constellation purchased €10,500 for delivery on June 30, 2016, in anticipation of an expected purchase of merchandise for €10,500 at the end of June. The forward contract was a qualified hedge of a forecasted transaction. Constellation took delivery of the merchandise, settled the forward contract, and paid the German supplier €10,500 on June 30, 2016. The merchandise was subsequently sold in the U.S. on July 12, 2016, for $14,250 in cash. Relevant exchange rates ($/€) are as follows: Spot rate Forward rate for delivery June 30, 2016 April 1, 2016 $ 1.32 $1.30 June 30, 2016 1.36 -- Prepare the journal entries made by Constellation Brands on June 30 and July 12 concerning the above events. Assume Constellation Brands is a calendar-year company, and records cost of goods sold at the time of sale. General Journal Date Description Debit Credit 06/30/16 Answer Answer Answer Answer Answer Answer To record increase in fair value of forward contract. Answer Answer Answer Investment in forward contract Answer Answer Answer Answer Answer To record settlement of forward contract. Answer Answer Answer Answer Answer Answer To record delivery of merchandise and payment to supplier. 07/12/16 Answer Answer Answer Answer Answer Answer To record merchandise sale. Other comprehensive income Answer Answer Answer Answer Answer Answer Answer Answer To record cost of sale. PreviousSave AnswersNext

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Constellation Brands, a U.S. company, purchases merchandise from a German supplier on a regular basis. On April 1, 2016, Constellation purchased €10,500 for delivery on June 30, 2016, in anticipation of an expected purchase of merchandise for €10,500 at the end of June. The forward contract was a qualified hedge of a forecasted transaction. Constellation took delivery of the merchandise, settled the forward contract, and paid the German supplier €10,500 on June 30, 2016. The merchandise was subsequently sold in the U.S. on July 12, 2016, for $14,250 in cash. Relevant exchange rates ($/€) are as follows:

	Spot rate	Forward rate for delivery June 30, 2016
April 1, 2016	$ 1.32	$1.30
June 30, 2016	1.36	--

Prepare the journal entries made by Constellation Brands on June 30 and July 12 concerning the above events. Assume Constellation Brands is a calendar-year company, and records cost of goods sold at the time of sale.

General Journal
Date	Description	Debit	Credit
06/30/16	Answer	Answer	Answer
	Answer	Answer	Answer
	To record increase in fair value of forward contract.
	Answer	Answer	Answer
	Investment in forward contract	Answer	Answer
	Answer	Answer	Answer
	To record settlement of forward contract.
	Answer	Answer	Answer
	Answer	Answer	Answer
	To record delivery of merchandise and payment to supplier.
07/12/16	Answer	Answer	Answer
	Answer	Answer	Answer
	To record merchandise sale.
	Other comprehensive income	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
	To record cost of sale.

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