On September 1, 2019 Philips corporation sold merchandise to a foreign customer for 300,000 Brazilian real with payment to be received on March 1, 2020. At the date of sale, Philips entered into a six month forward contract to sell 300,000 reals. The forward contract was properly designated as a fair value hedge. The following exchange rates apply: Date Spot rate Forward rate (to March 1, 2020) September 1, 2019 $0.46 $ 0.49 December 31, 2019 0.50 0.52 March 1, 2020 0.54 Philips’ incremental borrowing rate is 12%. The present value factor at an annual interest rate of 12% is .9610. What journal entry should Philips prepare to record the value of the forward contract on December 31, 2019?
On September 1, 2019 Philips corporation sold merchandise to a foreign customer for 300,000 Brazilian real with payment to be received on March 1, 2020. At the date of sale, Philips entered into a six month forward contract to sell 300,000 reals. The forward contract was properly designated as a fair value hedge. The following exchange rates apply:
Date Spot rate Forward rate
(to March 1, 2020)
September 1, 2019 $0.46 $ 0.49
December 31, 2019 0.50 0.52
March 1, 2020 0.54
Philips’ incremental borrowing rate is 12%. The present value factor at an annual interest rate of 12% is .9610. What
Step by step
Solved in 2 steps
