Po.23. Hedging a Forecasted Sale TransactionOn December 10, 2023, Daisy Foods, a U.S. company, anticipates sales in the amount of A$25,000,000 to an Australian customer,payment in Australian dollars to be received at the end of May 2024. On December 10, 2023, Daisy Foods enters a forward contract forthe sale of A$25,000,000 for a total price of $19,597,500 on May 31, 2024. The forward contract qualifies as a hedge of the forecastedsale. On March 1, 2024, Daisy delivered the merchandise to the Australian customer. On May 31, 2024, Daisy received A$25,000,000 fromthe customer, and delivered it to the broker to close the forward contract. Daisy Foods' accounting year ends January 31, Relevantexchange rates ($/AS) are as follows:December 10, 2023January 31, 2024March 1, 2024May 31, 2024Spot rate$0.78410.78320.77980.7750Forward rate for deliveryMay 31, 2024$0.78390.78300.7796Prepare the journal entries to record the above events, including January 31, 2024 adjusting entries. Date01/31/2403/01/2405/31/24General JournalDescriptionTo record change in value of forward contract.To record change in value of forward sale contract.To record delivery of merchandise.To adjust accounts receivable.To record change in value of forward contract.To record payment from the customer.Investment in forward contract4To record settlement of the forward contract."♦To reclassify accumulated other comprehensive income.♦÷<<>O<>O÷<<><>4)DebitCredit

The spot rate, also known as the "spot exchange rate" or simply "exchange rate," is the current…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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