On 6/1/X2, an American firm purchased a inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/X2. Also on 6/1/X2, the American firm entered into a forward contract to purchase 100,000 Canadian dollars for delivery on 8/1/X2. The exchange rates were as follows: The American firm's fiscal year end is 6/30/X2. The changes in the value of the forward contract should be discounted at 8%. What is the recorded value of the Forward Contract on 6/1/X2?

Question

On 6/1/X2, an American firm purchased a inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/X2. Also on 6/1/X2, the American firm entered into a forward contract to purchase 100,000 Canadian dollars for delivery on 8/1/X2. The exchange rates were as follows:  The American firm's fiscal year end is 6/30/X2. The changes in the value of the forward contract should be discounted at 8%. What is the recorded value of the Forward Contract on 6/1/X2?

Quizplus · Accepted Answer

A memo entry is recorded at the inception of the forward contract to indicate the contract has been acquired. The value of the contract is not recorded until the earlier of the next financial statement date or the settlement date.

On 6/1/X2, an American Firm Purchased a Inventory Costing 100,000