On November 1, 20X1, a U.S. company sold merchandise to a foreign firm for 100,000 FCs with payment to be made on January 31, 20X2, in FCs. To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on December 1, 20X1 to sell 100,000 FCs on January 31, 20X2. The U.S. firm has a December 31 year end for accounting purposes. The following exchange rates may apply:
Discount rate = 10%
Required:
Make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 20X1, and January 31, 20X2.

Question

On November 1, 20X1, a U.S. company sold merchandise to a foreign firm for 100,000 FCs with payment to be made on January 31, 20X2, in FCs. To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on December 1, 20X1 to sell 100,000 FCs on January 31, 20X2. The U.S. firm has a December 31 year end for accounting purposes. The following exchange rates may apply:
  Discount rate = 10%
Required:
Make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 20X1, and January 31, 20X2.

Quizplus · Accepted Answer

The Answer of On November 1, 20X1, a U.S. company sold merchandise to a foreign firm for 100,000 FCs with payment to be made on January 31, 20X2, in FCs. To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on December 1, 20X1 to sell 100,000 FCs on January 31, 20X2. The U.S. firm has a December 31 year end for accounting purposes. The following exchange rates may apply:
  Discount rate = 10%
Required:
Make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 20X1, and January 31, 20X2.