On October 1, 2023, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2024, for a price of 1,026,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2023, to sell PLN 1,026,000 in four months (on January 31, 2024). U.S. dollar-Polish zloty exchange rates are as follows: es Date October 1, 2023 December 31, 2023 January 31, 2024 Spot Rate $ 0.27 Forward Rate (to January 31, 2024) $ 0.31 0.30 0.32 0.34 N/A Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. Required: a. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale. b. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.
On October 1, 2023, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2024, for a price of 1,026,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2023, to sell PLN 1,026,000 in four months (on January 31, 2024). U.S. dollar-Polish zloty exchange rates are as follows: es Date October 1, 2023 December 31, 2023 January 31, 2024 Spot Rate $ 0.27 Forward Rate (to January 31, 2024) $ 0.31 0.30 0.32 0.34 N/A Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. Required: a. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale. b. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
dndbdh not use ai please
Transcribed Image Text:On October 1, 2023, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on
January 31, 2024, for a price of 1,026,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2023, to sell PLN
1,026,000 in four months (on January 31, 2024). U.S. dollar-Polish zloty exchange rates are as follows:
es
Date
October 1, 2023
December 31, 2023
January 31, 2024
Spot Rate
$ 0.27
Forward Rate (to
January 31, 2024)
$ 0.31
0.30
0.32
0.34
N/A
Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm
commitment is measured by referring to changes in the forward rate and, therefore, forward points are included in assessing hedge
effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be
ignored.
Required:
a. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale.
b. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education