On December 15, 2014, Electronix Company purchased inventory from a foreign supplier for 2,000,000 foreign currency units (fcu's). Payment will be made on February 13, 2015. On December 15, 2014, to hedge the transaction, Electronix signed a forward contract to buy 2,000,000 fcu's in 60 days. Electronix uses a discount rate of 5% resulting in a 45-day present value factor of .9938. The forward contract will be settled net. The related exchange rates are shown below:
On December 15, 2014, Electronix recorded a debit to Inventory and a credit to Accounts Payable (fcu) for $20,000, using the current spot rate.
Required:
1. Show the required entries on December 31, 2014 if the hedge is a cash flow hedge. Round to the nearest whole dollar.
2. Show the required entries on December 31, 2014 if the hedge is a fair value hedge. Round to the nearest whole dollar.

Question

On December 15, 2014, Electronix Company purchased inventory from a foreign supplier for 2,000,000 foreign currency units (fcu's). Payment will be made on February 13, 2015. On December 15, 2014, to hedge the transaction, Electronix signed a forward contract to buy 2,000,000 fcu's in 60 days. Electronix uses a discount rate of 5% resulting in a 45-day present value factor of .9938. The forward contract will be settled net. The related exchange rates are shown below:
  On December 15, 2014, Electronix recorded a debit to Inventory and a credit to Accounts Payable (fcu) for $20,000, using the current spot rate.
Required:
1. Show the required entries on December 31, 2014 if the hedge is a cash flow hedge. Round to the nearest whole dollar.
2. Show the required entries on December 31, 2014 if the hedge is a fair value hedge. Round to the nearest whole dollar.

Quizplus · Accepted Answer

The Answer of On December 15, 2014, Electronix Company purchased inventory from a foreign supplier for 2,000,000 foreign currency units (fcu's). Payment will be made on February 13, 2015. On December 15, 2014, to hedge the transaction, Electronix signed a forward contract to buy 2,000,000 fcu's in 60 days. Electronix uses a discount rate of 5% resulting in a 45-day present value factor of .9938. The forward contract will be settled net. The related exchange rates are shown below:
  On December 15, 2014, Electronix recorded a debit to Inventory and a credit to Accounts Payable (fcu) for $20,000, using the current spot rate.
Required:
1. Show the required entries on December 31, 2014 if the hedge is a cash flow hedge. Round to the nearest whole dollar.
2. Show the required entries on December 31, 2014 if the hedge is a fair value hedge. Round to the nearest whole dollar.

On December 15, 2014, Electronix Company Purchased Inventory from a Foreign