On December 15,2011,Electronix Company purchased inventory from a foreign supplier for 2,000,000 foreign currency units (fcu's).Payment will be made on February 13,2012.On December 15,2011,to hedge the transaction,Electronix signed a forward contract to buy 2,000,000 fcu's in 60 days.Electronix uses a discount rate of 5% resulting in a 45-day present value factor of .9938.The forward contract will be settled net.The related exchange rates are shown below:
On December 15,2011,Electronix recorded a debit to Inventory and a credit to Accounts Payable (fcu)for $20,000,using the current spot rate.
Required:
1.Show the required entries on December 31,2011 if the hedge is a cash flow hedge.Round to the nearest whole dollar.
2.Show the required entries on December 31,2011 if the hedge is a fair value hedge.Round to the nearest whole dollar.

Question

On December 15,2011,Electronix Company purchased inventory from a foreign supplier for 2,000,000 foreign currency units (fcu's).Payment will be made on February 13,2012.On December 15,2011,to hedge the transaction,Electronix signed a forward contract to buy 2,000,000 fcu's in 60 days.Electronix uses a discount rate of 5% resulting in a 45-day present value factor of .9938.The forward contract will be settled net.The related exchange rates are shown below:
  On December 15,2011,Electronix recorded a debit to Inventory and a credit to Accounts Payable (fcu)for $20,000,using the current spot rate.
Required:
1.Show the required entries on December 31,2011 if the hedge is a cash flow hedge.Round to the nearest whole dollar.
2.Show the required entries on December 31,2011 if the hedge is a fair value hedge.Round to the nearest whole dollar.

Quizplus · Accepted Answer

The Answer of On December 15,2011,Electronix Company purchased inventory from a foreign supplier for 2,000,000 foreign currency units (fcu's).Payment will be made on February 13,2012.On December 15,2011,to hedge the transaction,Electronix signed a forward contract to buy 2,000,000 fcu's in 60 days.Electronix uses a discount rate of 5% resulting in a 45-day present value factor of .9938.The forward contract will be settled net.The related exchange rates are shown below:
  On December 15,2011,Electronix recorded a debit to Inventory and a credit to Accounts Payable (fcu)for $20,000,using the current spot rate.
Required:
1.Show the required entries on December 31,2011 if the hedge is a cash flow hedge.Round to the nearest whole dollar.
2.Show the required entries on December 31,2011 if the hedge is a fair value hedge.Round to the nearest whole dollar.

On December 15,2011,Electronix Company Purchased Inventory from a Foreign Supplier