Hedging a Forecasted Sale Transaction On 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 for the 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 forecasted sale. On March 1, 2024, Daisy delivered the merchandise to the Australian customer. On May 31, 2024, Daisy received A$25,000,000 from the customer, and delivered it to the broker to close the forward contract, Daisy Foods' accounting year ends January 31. Relevant exchange rates ($/AS) are as follows: December 10, 2023 January 31, 2024 March 1, 2024 May 31, 2024 Spot rate $0.7841 0.7832 0.7798 0.7750 Forward rate for delivery May 31, 2024 $0.7839 0.7830 0.7796
Hedging a Forecasted Sale Transaction On 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 for the 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 forecasted sale. On March 1, 2024, Daisy delivered the merchandise to the Australian customer. On May 31, 2024, Daisy received A$25,000,000 from the customer, and delivered it to the broker to close the forward contract, Daisy Foods' accounting year ends January 31. Relevant exchange rates ($/AS) are as follows: December 10, 2023 January 31, 2024 March 1, 2024 May 31, 2024 Spot rate $0.7841 0.7832 0.7798 0.7750 Forward rate for delivery May 31, 2024 $0.7839 0.7830 0.7796
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Hedging a Forecasted Sale Transaction
On 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 for
the 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 forecasted
sale. On March 1, 2024, Daisy delivered the merchandise to the Australian customer. On May 31, 2024, Daisy received A$25,000,000 from
the customer, and delivered it to the broker to close the forward contract. Daisy Foods' accounting year ends January 31, Relevant
exchange rates ($/AS) are as follows:
December 10, 2023
January 31, 2024
March 1, 2024
May 31, 2024
Spot rate
$0.7841
0.7832
0.7798
0.7750
Forward rate for delivery
May 31, 2024
$0.7839
0.7830
0.7796
Prepare the journal entries to record the above events, including January 31, 2024 adjusting entries.
Transcribed Image Text:Date
01/31/24
03/01/24
05/31/24
General Journal
Description
To 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 contract
4
To record settlement of the forward contract.
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♦
To reclassify accumulated other comprehensive income.
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Debit
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