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On October 1, 2024, Richmond Company sold inventory to a customer in a foreign country, denominated in 100,000 local currency units. Collection is expected in four months. On October 1, 2024, a forward exchange contract was acquired whereby Richmond was to pay 100,000 local currency units in four months (on February 1.2025) and receive $86,000 in U.S. dollars. The spot and forward rates for the local currency units were as follows: Date Rate Description Exchange Rate October 1, 2024 Spot Rate $0.91 1 local currency unit December 31, 2024 Spot Rate $ 0.93 1 local currency unit February 1, 2025 1-Month Forward Rate Spot Rate $0.88 $0.94 1 local currency unit 1 local currency unit Any discount or premium on the forward contract is amortized using the straight-line method. Required: Assuming this is a cash flow hedge, prepare journal entries for this sales transaction and forward contract

On October 1, 2024, Richmond Company sold inventory to a customer in a foreign country, denominated in 100,000 local currency units. Collection is expected in four months. On October 1, 2024, a forward exchange contract was acquired whereby Richmond was to pay 100,000 local currency units in four months (on February 1.2025) and receive $86,000 in U.S. dollars. The spot and forward rates for the local currency units were as follows: Date Rate Description Exchange Rate October 1, 2024 Spot Rate $0.91 1 local currency unit December 31, 2024 Spot Rate $ 0.93 1 local currency unit February 1, 2025 1-Month Forward Rate Spot Rate $0.88 $0.94 1 local currency unit 1 local currency unit Any discount or premium on the forward contract is amortized using the straight-line method. Required: Assuming this is a cash flow hedge, prepare journal entries for this sales transaction and forward contract

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On October 1, 2024, Richmond Company sold inventory to a customer in a foreign country, denominated in 100,000 local currency units. Collection is expected in four months. On October 1, 2024, a forward exchange contract was acquired whereby Richmond was to pay 100,000 local currency units in four months (on February 1, 2025) and receive $86,000 in U.S. dollars. The spot and forward rates for the local currency units were as follows: Date October 1, 2024 Rate Description Spot Rate Exchange Rate $ 0.91 = 1 local currency unit December 31, 2024 Spot Rate $ 0.93 1 local currency unit 1-Month Forward Rate Spot Rate $ 0.88 1 local currency unit February 1, 2025 $ 0.94 = 1 local currency unit Any discount or premium on the forward contract is amortized using the straight-line method. Required: Assuming this is a cash flow hedge, prepare journal entries for this sales transaction and forward contract.
Transcribed Image Text:On October 1, 2024, Richmond Company sold inventory to a customer in a foreign country, denominated in 100,000 local currency units. Collection is expected in four months. On October 1, 2024, a forward exchange contract was acquired whereby Richmond was to pay 100,000 local currency units in four months (on February 1, 2025) and receive $86,000 in U.S. dollars. The spot and forward rates for the local currency units were as follows: Date October 1, 2024 Rate Description Spot Rate Exchange Rate $ 0.91 = 1 local currency unit December 31, 2024 Spot Rate $ 0.93 1 local currency unit 1-Month Forward Rate Spot Rate $ 0.88 1 local currency unit February 1, 2025 $ 0.94 = 1 local currency unit Any discount or premium on the forward contract is amortized using the straight-line method. Required: Assuming this is a cash flow hedge, prepare journal entries for this sales transaction and forward contract.
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