Belsen purchased inventory on December 1, 2017.Payment of 200,000 stickles was to be made in sixty days.Also on December 1, Belsen signed a contract to purchase §200,000 in sixty days.The spot rate was §1 = .35714, and the 60-day forward rate was §1 = $.38462.On December 31, the spot rate was §1 = .34483 and the 30-day forward rate was §1 = .38168.Assume an annual interest rate of 12% and a fair value hedge.The present value for one month at 12% is .9901. In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1?
A) $71,428.
B) $76,924.
C) $ 588.
D) $ 582.
E) $ 0, since there is no cost, there is no value for the contract at this date.

Question

Quizplus · Accepted Answer

The Answer of Belsen purchased inventory on December 1, 2017.Payment of 200,000 stickles was to be made in sixty days.Also on December 1, Belsen signed a contract to purchase §200,000 in sixty days.The spot rate was §1 = .35714, and the 60-day forward rate was §1 = $.38462.On December 31, the spot rate was §1 = .34483 and the 30-day forward rate was §1 = .38168.Assume an annual interest rate of 12% and a fair value hedge.The present value for one month at 12% is .9901. In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1?
A) $71,428.
B) $76,924.
C) $ 588.
D) $ 582.
E) $ 0, since there is no cost, there is no value for the contract at this date.

Belsen Purchased Inventory on December 1, 2017