Duck Corporation “forecasted” on December 21, 2017 to sell a machine to a company in Italy. The selling price was 500,000 euros, to be paid on March 21, 2018. To hedge against fluctuations in the exchange rate, Duck entered into a forward contract on Dec. 21, 2017 to sell 500,000 euros on March 21, 2018, the agreed date of machine delivery, for $1.227 per euro. The company ends its fiscal year on December 31. The following exchange rates were quoted:
Forward Rate |
||
Date |
Spot Rate |
(Delivery on 3/21/2017) |
12/21/2017 |
1.228 |
1.227 |
12/31/2017 |
1.222 |
1.221 |
3/21/2018 |
1.225 |
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Notes: Read carefully and follow strictly so that Bb can grade you
correctly!
1. Use comma in numbers, one thousand is 1,000, not 1000. Round to
the nearest dollar: 1,000.45 should be 1,000, and 1,000.55 should
be 1,001, no decimal points. No $ sign.
2. If no entry is required, write N/A.
3. Only use the following accounts: Inventory, A/P (FC), A/R (FC),
Cash, Sales, CGS, Exchange G/L, Fwd Contract, Contract G/L,
Contract G/L (OCI), Firm CMMT, CMMT G/L.
4. Copy account names accurately to receive
credits, names are not case sensitive.
5. Remember: do ALL buy/sell transaction entries first, then
financing management entries later.
Required:
A. Prepare all journal entries relative to the above event on December 21, 2017.
Buy/Sell
Account Dr.
Account Cr.
Financing
Account Dr.
Account Cr.
B. Prepare all journal entries relative to the above event on
December 31, 2017.
Buy/Sell
Account Dr.
Account Cr.
Financing
Account Dr.
Account Cr.
C. Prepare all journal entries relative to the above event on March
21, 2018.
Buy/Sell
Account Dr.
Account Cr.
Account Dr.
Account Cr.
Financing
Account Dr.
Account Cr.
Account Dr.
Account Cr.
The forward contract value at starting Zero, but after that changes in fair vaue recognize the value of forward contract.
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