P 13-6 Foreign currency hedge, firm purchase commitment On October 2, 2016, Flx, a U.S. company, entered into a forward contract to purchase 50,000 euros for delivery in 180 days at a forward 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, and March 31, 2017, are as follows: December 31, 2016 March 31, 2017 Spot rate $0.6390 $0.6560 Forward rates 30-day futures $0.6410 $0.6575 90-day futures $0.6420 $0.6615 180-day futures $0.6450 $0.6680 Required Prepare journal entries to: Record the forward contract on October 2, 2016 Adjust the accounts at December 31, 2016 Account for settlement of the forward contract and record and adjust the related cash purchase on March 31, 2017
P 13-6 Foreign currency hedge, firm purchase commitment On October 2, 2016, Flx, a U.S. company, entered into a forward contract to purchase 50,000 euros for delivery in 180 days at a forward 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, and March 31, 2017, are as follows: December 31, 2016 March 31, 2017 Spot rate $0.6390 $0.6560 Forward rates 30-day futures $0.6410 $0.6575 90-day futures $0.6420 $0.6615 180-day futures $0.6450 $0.6680 Required Prepare journal entries to: Record the forward contract on October 2, 2016 Adjust the accounts at December 31, 2016 Account for settlement of the forward contract and record and adjust the related cash purchase on March 31, 2017
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
P 13-6 Foreign currency hedge, firm purchase commitment
On October 2, 2016, Flx, a U.S. company, entered into a forward contract to purchase 50,000 euros for delivery in 180 days at a forward 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, and March 31, 2017, are as follows:
|
December 31, 2016 |
March 31, 2017 |
|
|
Spot rate |
$0.6390 |
$0.6560 |
|
Forward rates |
||
|
30-day futures |
$0.6410 |
$0.6575 |
|
90-day futures |
$0.6420 |
$0.6615 |
|
180-day futures |
$0.6450 |
$0.6680 |
Required
Prepare
- Record the forward contract on October 2, 2016
- Adjust the accounts at December 31, 2016
- Account for settlement of the forward contract and record and adjust the related cash purchase on March 31, 2017
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