On October 1, 2021, Jarvis Co. sold inventory to a customer in a foreign country, denominated in 100,000 local currency units (LCU). Collection is expected in four months. On October 1, 2021, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2022) and receive $78,000 in U.S. dollars. The spot and forward rates for the LCU were as follows: The company's borrowing rate is 12%. The present value factor for one month is 0.9901.Any discount or premium on the contract is amortized using the straight-line method.Assuming this is a fair value hedge; prepare journal entries for this sales transaction and forward contract.

Question

On October 1, 2021, Jarvis Co. sold inventory to a customer in a foreign country, denominated in 100,000 local currency units (LCU). Collection is expected in four months. On October 1, 2021, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2022) and receive $78,000 in U.S. dollars. The spot and forward rates for the LCU were as follows:  The company's borrowing rate is 12%. The present value factor for one month is 0.9901.Any discount or premium on the contract is amortized using the straight-line method.Assuming this is a fair value hedge; prepare journal entries for this sales transaction and forward contract.

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The Answer of On October 1, 2021, Jarvis Co. sold inventory to a customer in a foreign country, denominated in 100,000 local currency units (LCU). Collection is expected in four months. On October 1, 2021, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2022) and receive $78,000 in U.S. dollars. The spot and forward rates for the LCU were as follows:  The company's borrowing rate is 12%. The present value factor for one month is 0.9901.Any discount or premium on the contract is amortized using the straight-line method.Assuming this is a fair value hedge; prepare journal entries for this sales transaction and forward contract.