Hedged Forecasted Revenue with Adjusting Entry McDonald's Corporation forecasts that it will receive £5,000,000 in franchise revenues in 6 months. To lock in the dollar value of these revenues, on October 10, 2019, it enters a forward sale contract to deliver £5,000,000 to a broker at a rate of $1.324/E on April 10, 2020. On April 10, 2020, McDonald's receives £5,000,000 in payment from the franchisees, records the revenue as earned, and sells the currency using the forward contract. McDonald's Corporation's accounting year ends December 31. Relevant exchange rates are: October 10, 2019 December 31, 2019 April 10, 2020 Required Spot rate $1.325 1.322 1.319 Forward rate for delivery April 10, 2020 $1.324 1.320 Prepare the journal entries made by McDonald's in 2019 and 2020, including its December 31, 2019, adjusting entries. Date 12/31/19 Investment in forward contract Description To record increase in fair value of forward sale contract. 04/10/20 Investment in forward contract To record increase in fair value of forward sale contr To record franchise revenue. # Foreign currency To record delivery of currency and receipt of U.S. dollars. " To release forward contract gains or losses from OCI to income. Debit 0 0 0 0 0 0 0 0 0 0 Credit 0 0 0 0 0 0 0 0 000 0
Hedged Forecasted Revenue with Adjusting Entry McDonald's Corporation forecasts that it will receive £5,000,000 in franchise revenues in 6 months. To lock in the dollar value of these revenues, on October 10, 2019, it enters a forward sale contract to deliver £5,000,000 to a broker at a rate of $1.324/E on April 10, 2020. On April 10, 2020, McDonald's receives £5,000,000 in payment from the franchisees, records the revenue as earned, and sells the currency using the forward contract. McDonald's Corporation's accounting year ends December 31. Relevant exchange rates are: October 10, 2019 December 31, 2019 April 10, 2020 Required Spot rate $1.325 1.322 1.319 Forward rate for delivery April 10, 2020 $1.324 1.320 Prepare the journal entries made by McDonald's in 2019 and 2020, including its December 31, 2019, adjusting entries. Date 12/31/19 Investment in forward contract Description To record increase in fair value of forward sale contract. 04/10/20 Investment in forward contract To record increase in fair value of forward sale contr To record franchise revenue. # Foreign currency To record delivery of currency and receipt of U.S. dollars. " To release forward contract gains or losses from OCI to income. Debit 0 0 0 0 0 0 0 0 0 0 Credit 0 0 0 0 0 0 0 0 000 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Hedged Forecasted Revenue with Adjusting Entry
McDonald's Corporation forecasts that it will receive £5,000,000 in franchise revenues in 6 months. To lock in the
dollar value of these revenues, on October 10, 2019, it enters a forward sale contract to deliver £5,000,000 to a
broker at a rate of $1.324/E on April 10, 2020. On April 10, 2020, McDonald's receives £5,000,000 in payment from
the franchisees, records the revenue as earned, and sells the currency using the forward contract. McDonald's
Corporation's accounting year ends December 31. Relevant exchange rates are:
October 10, 2019
December 31, 2019
April 10, 2020
Required
Spot rate
$1.325
1.322
1.319
Forward rate for delivery
April 10, 2020
$1.324
1.320
Prepare the journal entries made by McDonald's in 2019 and 2020, including its December 31, 2019, adjusting
entries.
Date
12/31/19 Investment in forward contract
Description
To record increase in fair value of forward sale contract.
04/10/20 Investment in forward contract
To record increase in fair value of forward sale contr
To record franchise revenue,
46
Foreign currency
To record delivery of currency and receipt of U.S. dollars.
4)
AP
"
4
41
To release forward contract gains or losses from OCI to income.
(
Debit
0
0
0
0
0
0
0
0
0
Credit
0
0
0
0
0
0
00
0
0
0
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