Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 16,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 16,000 dinars on March 1, 2021. Relevant exchange rates for the dinar on various dates are as follows: Date Spot Rate Forward Rate (to March 1, 2021) December 1, 2020 $2.70 $2.775 December 31, 2020 2.80 2.900 March 1, 2021 2.95 N/A A. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars.
Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 16,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 16,000 dinars on March 1, 2021. Relevant exchange rates for the dinar on various dates are as follows: Date Spot Rate Forward Rate (to March 1, 2021) December 1, 2020 $2.70 $2.775 December 31, 2020 2.80 2.900 March 1, 2021 2.95 N/A A. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars.
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter13: Marketable Securities And Derivatives
Section: Chapter Questions
Problem 21E
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Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 16,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 16,000 dinars on March 1, 2021.
Relevant exchange rates for the dinar on various dates are as follows:
| Date | Spot Rate | Forward Rate (to March 1, 2021) |
| December 1, 2020 | $2.70 | $2.775 |
| December 31, 2020 | 2.80 | 2.900 |
| March 1, 2021 | 2.95 | N/A |
A. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency payable, prepare
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