On November 1, 2016, a U.S.company purchased inventory from a foreign supplier for 100,000 FC, with payment to be made on January 31, 2017, in FC.To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on November 1 to purchase 100,000 FC on January 31, 2017.The U.S.firm has a December 31 year end for accounting purposes.The following exchange rates may apply:
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$$\begin{array} { l c c }
\text { Date } & \text { Spot Rate } & \text { Fwd Rate } \
\hline 11 / 1 / 16 & \$ 0.15 & \$ 0.13 \
12 / 31 / 16 & \$ 0.16 & \$ 0.14 \
1 / 31 / 17 & \$ 0.165 & \$ 0.165
\end{array}$$ Discount rate = 12%.The transaction qualifies for treatment as a cash flow hedge.
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Required:
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Make all the necessary journal entries for the U.S.firm relative to these events occurring between November 1, 2016, and January 31, 2017.
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Question

On November 1, 2016, a U.S.company purchased inventory from a foreign supplier for 100,000 FC, with payment to be made on January 31, 2017, in FC.To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on November 1 to purchase 100,000 FC on January 31, 2017.The U.S.firm has a December 31 year end for accounting purposes.The following exchange rates may apply:
?
?
 $$\begin{array} { l c c } 
\text { Date } & \text { Spot Rate } & \text { Fwd Rate } \
\hline 11 / 1 / 16 & \$ 0.15 & \$ 0.13 \
12 / 31 / 16 & \$ 0.16 & \$ 0.14 \
1 / 31 / 17 & \$ 0.165 & \$ 0.165
\end{array}$$ Discount rate = 12%.The transaction qualifies for treatment as a cash flow hedge.
?
Required:
?
Make all the necessary journal entries for the U.S.firm relative to these events occurring between November 1, 2016, and January 31, 2017.
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Quizplus · Accepted Answer

The Answer of On November 1, 2016, a U.S.company purchased inventory from a foreign supplier for 100,000 FC, with payment to be made on January 31, 2017, in FC.To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on November 1 to purchase 100,000 FC on January 31, 2017.The U.S.firm has a December 31 year end for accounting purposes.The following exchange rates may apply:
?
?
 $$\begin{array} { l c c } 
\text { Date } & \text { Spot Rate } & \text { Fwd Rate } \
\hline 11 / 1 / 16 & \$ 0.15 & \$ 0.13 \
12 / 31 / 16 & \$ 0.16 & \$ 0.14 \
1 / 31 / 17 & \$ 0.165 & \$ 0.165
\end{array}$$ Discount rate = 12%.The transaction qualifies for treatment as a cash flow hedge.
?
Required:
?
Make all the necessary journal entries for the U.S.firm relative to these events occurring between November 1, 2016, and January 31, 2017.
?

On November 1, 2016, a U Discount Rate = 12