On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.28 per Norwegian krone, Derby enters into a forward contract to purchase 617,500 Norwegian kroner at a three-month forward rate of $0.29. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.286 per Norwegian krone, Derby orders and receives the merchandise, paying 617,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss? Complete this question by entering your answers in the Req A1 Req A2 Req B Prepare all journal entries for Derby Corporation related to this Note: If no entry is required for a transaction/event, select "No in the first account field. View transaction list View journal entry worksheet No 1 Date 03/01 General Journal Debit No Journal Entry Required 2 05/31 Other Comprehensive Income (OCI) 3 05/31 4 05/31 5 05/31 i 6 05/31 7 05/31 Forward Contract Cost of Goods Sold Other Comprehensive Income (OCI) Foreign Currency (NOK) Forward Contract Cash Inventory Foreign Currency (NOK) Cost of Goods Sold Inventory Accumulated Other Comprehensive Income (AOCI) Cost of Goods Sold
On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.28 per Norwegian krone, Derby enters into a forward contract to purchase 617,500 Norwegian kroner at a three-month forward rate of $0.29. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.286 per Norwegian krone, Derby orders and receives the merchandise, paying 617,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss? Complete this question by entering your answers in the Req A1 Req A2 Req B Prepare all journal entries for Derby Corporation related to this Note: If no entry is required for a transaction/event, select "No in the first account field. View transaction list View journal entry worksheet No 1 Date 03/01 General Journal Debit No Journal Entry Required 2 05/31 Other Comprehensive Income (OCI) 3 05/31 4 05/31 5 05/31 i 6 05/31 7 05/31 Forward Contract Cost of Goods Sold Other Comprehensive Income (OCI) Foreign Currency (NOK) Forward Contract Cash Inventory Foreign Currency (NOK) Cost of Goods Sold Inventory Accumulated Other Comprehensive Income (AOCI) Cost of Goods Sold
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:On March 1, Derby Corporation (a U.S.-based company) expects
to order merchandise from a supplier in Norway in three
months. On March 1, when the spot rate is $0.28 per Norwegian
krone, Derby enters into a forward contract to purchase 617,500
Norwegian kroner at a three-month forward rate of $0.29.
Forward points are excluded in assessing the forward contract's
effectiveness as a hedge, and are amortized to net income on a
straight-line basis. At the end of three months, when the spot
rate is $0.286 per Norwegian krone, Derby orders and receives
the merchandise, paying 617,500 kroner. The merchandise is
sold within 30 days.
Required:
a-1. Prepare all journal entries for Derby Corporation related to
this transaction and hedge.
a-2. What amount should Derby Corporation report in the
current year's net income as cost of goods sold?
b. What amount should Derby Corporation report in the current
year's net income as foreign exchange gain or loss?
Complete this question by entering your answers in the
Req A1
Req A2
Req B
Prepare all journal entries for Derby Corporation related to this
Note: If no entry is required for a transaction/event, select "No
in the first account field.
View transaction list View journal entry worksheet
No
1
Date
03/01
General Journal
Debit
No Journal Entry Required
2
05/31
Other Comprehensive Income (OCI)
3
05/31
4
05/31
5
05/31
i
6
05/31
7
05/31
Forward Contract
Cost of Goods Sold
Other Comprehensive Income (OCI)
Foreign Currency (NOK)
Forward Contract
Cash
Inventory
Foreign Currency (NOK)
Cost of Goods Sold
Inventory
Accumulated Other Comprehensive Income (AOCI)
Cost of Goods Sold
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