On October 2, 2016, Flx, a US company, entered into a forward contract to purcahse 50,000 euros for delivery in 180 days at a rate of $0.6350. The forward contract is a derivative instrument hedging an identifiable foreign currency purchase commitment for inventory as defined in ASC Topic 815. The spot rate for euros on October 2, 2016 was $0.6250. Spot rates and forward rates for euros on December 31, 2016 are as follows: December 31, 2016 March 31, 2017 Spot Rate $0.6390 $0.6560 Forward Rates 30-day futures $0.6410 $0.65750 90-day futures $0.6420 $0.6615 180-day futures $0.6450 $0.6680 Required: Prepare Journal Entries 1. Record the forward contract on October 2, 2016. 2. Adjust the accounts at December 31, 2016. 3. Account for settlement of the forward contract and record and adjust the related cash purchase on March 31, 2017.
Foreign currency hedge, firm purchase commitment.
On October 2, 2016, Flx, a US company, entered into a forward contract to purcahse 50,000 euros for delivery in 180 days at a rate of $0.6350. The forward contract is a derivative instrument hedging an identifiable foreign currency purchase commitment for inventory as defined in ASC Topic 815. The spot rate for euros on October 2, 2016 was $0.6250. Spot rates and forward rates for euros on December 31, 2016 are as follows:
December 31, 2016 March 31, 2017
Spot Rate $0.6390 $0.6560
Forward Rates
30-day futures $0.6410 $0.65750
90-day futures $0.6420 $0.6615
180-day futures $0.6450 $0.6680
Required: Prepare
1. Record the forward contract on October 2, 2016.
2. Adjust the accounts at December 31, 2016.
3. Account for settlement of the forward contract and record and adjust the related cash purchase on March 31, 2017.
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