Question

Bushnell Company, a U.S.-based exporter of fitness equipment received an order from a Japanese customer for 100 units of treadmills at a price of ￥100,000 per unit (The total export amount is ￥10,000,000). Relevant exchange rates are as follows:

Date	Spot rate	Forward rate
12/1/2017	￥100/$	￥108/$
12/31/2017	￥110/$	￥112/$
1/31/2018	￥115/$	￥115/$

Bushnell Company prepares financial statements on December 31.

Required

1. Assume Bushnell shipped the treadmills on 12/1/2017, and payment was made on 1/31/2018. On 12/1/2017, Bushnell Company entered into a two-month forward contract to sell ￥10,000,000. The forward contract is properly designated as a cash flow hedge of a foreign currency receivable. Prepare journal entries to account for the export sales and foreign currency forward transaction. Ignore present value discount computation.

2. Assume that the forward contract is properly designated as a fair value hedge. Prepare journal entries to account for the export sales and foreign currency forward transaction. Ignore present value discount computation.

Answer 1

	￥100/$
01-12-17	Accounts Receivable	Debit	100000
	Revenue	Credit	100000
	￥100/$
	￥110/$
31-12-17	Foreign Exchange	Debit	9091
	Accounts Receivable	Credit	9091
	￥108/$
	￥112/$
31-12-17	Foreign Exchange	Debit	3307
	Forward Contract	Credit	3307
	￥115/$
31-01-18	Cash	Debit	86956
	Foreign Exchange	Debit	3953
	Accounts Receivalbe	Credit	90909
31-01-18	￥112/$
	￥115/$
	Foreign Exchange	Debit	2330
	Forward Contract	Credit	2330