Lawrence Company, a U.S.company, ordered parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.025 per baht.A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $.027.The forward contract is properly designated as a fair value hedge of the 1,000,000 baht firm commitment.On August 7, when the parts are received, the spot rate is $.028.What is the amount of accounts payable that will be paid at this date?
A) $20,000.
B) $20,100.
C) $25,000.
D) $27,000.
E) $28,000.

Question

Quizplus · Accepted Answer

The accounts payable is based on the spot rate at the time the parts are received. On August 7, the spot rate is $.028 per baht. Therefore, the amount payable is 1,000,000 bahts * $.028 = $28,000.