On November 1, 2014, Moddel Company (a U.S. corporation) entered into a 90-day forward contract to purchase 200,000 British pounds. The purpose of the forward contract is to hedge a commitment to purchase special equipment on January 30, 2015 from a British firm Jeckyl Inc. The invoice price on the purchase commitment is denominated in British pounds. The forward contract is not settled net. Assume Moddel uses a 12% interest rate. Use a fair value hedge.
The relevant exchange rates are stated in dollars per pound:
Required:
1.What journal entry did Moddel record on November 1, 2014?
2.What journal entries did Moddel record on December 31, 2014?
3.What journal entries did Moddel record on January 30, 2015 if the purchase was made?

Question

On November 1, 2014, Moddel Company (a U.S. corporation) entered into a 90-day forward contract to purchase 200,000 British pounds. The purpose of the forward contract is to hedge a commitment to purchase special equipment on January 30, 2015 from a British firm Jeckyl Inc. The invoice price on the purchase commitment is denominated in British pounds. The forward contract is not settled net. Assume Moddel uses a 12% interest rate. Use a fair value hedge.
The relevant exchange rates are stated in dollars per pound:
  Required:
1.What journal entry did Moddel record on November 1, 2014?
2.What journal entries did Moddel record on December 31, 2014?
3.What journal entries did Moddel record on January 30, 2015 if the purchase was made?

Quizplus · Accepted Answer

The Answer of On November 1, 2014, Moddel Company (a U.S. corporation) entered into a 90-day forward contract to purchase 200,000 British pounds. The purpose of the forward contract is to hedge a commitment to purchase special equipment on January 30, 2015 from a British firm Jeckyl Inc. The invoice price on the purchase commitment is denominated in British pounds. The forward contract is not settled net. Assume Moddel uses a 12% interest rate. Use a fair value hedge.
The relevant exchange rates are stated in dollars per pound:
  Required:
1.What journal entry did Moddel record on November 1, 2014?
2.What journal entries did Moddel record on December 31, 2014?
3.What journal entries did Moddel record on January 30, 2015 if the purchase was made?

On November 1, 2014, Moddel Company (A U