Question

hedging transactions.

Required:
Complete journal entries to hedge an unrecognized foreign currency firm commitment as a foreign currency fair value hedge.

Use formulas to enter amounts and data. Show details of your calculations and processes. Explain each journal entry or why one was omitted.

Information:

1. Push Corp. operates in the United States. It uses the Euro for local currency transactions.

2. On Oct 01, 20x7, Push Corp. orders inventory items from German Corporation.

3. Within 30 days, the delivery of the German inventory parts will take place, Nov 1, 20x7.

4. The contract price is Euro 5,000 to be paid in 180 days, 6 months.

5. On Oct 01, 20x7, Push Corp. hedges its foreign currency payable commitment with a forward exchange contract to receive Euro 5,000 in 210 days (30+180).

6. Relevant exchange Rates:

	Spot Rate	Forward Exchange Rate	Days
10/01/20x7	1.1	1.25	210
11/01/20x7	1.15	1.3	180
12/31/20x7	1.2	1.35	120
04/28/20x8	1.15	0	0

Required Journal Entries:

A. 10/1/20x7 DR. Foreign Currency Receivable from Exchange Broker

CR Dollars Payable to Exchange Broker ($)

(Record signed forward exchange contract for receipt of 5,000 Euro in 210 days)

B. 11/1/20x7 DR Foreign Currency Receivable from Exchange Broker

CR Foreign Currency Transaction Gain

(Record Adjustment of forward contract to fair value)

C. 11/1/20x7 DR Foreign Currency Transaction Loss

CR Firm Commitment

D. 11/1/20x7 DR Inventory

DR Firm Commitment

CR A/P Euro

E. 12/31/20x7 DR Foreign Currency Receivable (Euro)

CR Foreign Currency Gain

F. 12/31/20x7 DR Foreign Currency Loss

CR A/P

G. 04/28/20x8 DR Foreign Currency Loss

CR Foreign Currency Receivable

DR A/P

CR Foreign Currency Gain

H. 04/28/20x8 DR Dollars Payable to Broker

CR Cash

DR Foreign Currency Units

CR Foreign Currency receivable

DR A/P

CR Foreign Currency Units

Answer 1