Cirtus Corporation,a U.S.corporation,placed an order for inventory from a Mexican supplier on September 18 when the spot rate was $0.0840 = 1 peso.The invoice price will be denominated in pesos.At that time,they entered into a 30-day forward contract (designated as a fair value hedge of the firm commitment to purchase)to purchase 860,000 pesos at a forward rate of $0.0810.On October 18 when the inventory was received,the spot rate was $0.0890.At what amount should the inventory be carried on Cirtus' books?

Question

Quizplus · Accepted Answer

The correct answer is A because the inventory should be carried at the forward rate of $0.0810, which results in a value of $69,660 (860,000 pesos * $0.0810).