On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,000,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,000,000 in four months (on January 31, 2021). U.S. dollar-Polish zloty exchange rates are as follows: Forward Rate Spot Rate $0.25 (to January 31, 2021) $ 0.29 Date October 1, 2020 December 31, 2020 January 31, 2021 0.28 0.31 0.30 N/A Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. a. Prepare journal entries for the foreian currency forward contract foreian currency firm commitment and export sale
On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,000,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,000,000 in four months (on January 31, 2021). U.S. dollar-Polish zloty exchange rates are as follows: Forward Rate Spot Rate $0.25 (to January 31, 2021) $ 0.29 Date October 1, 2020 December 31, 2020 January 31, 2021 0.28 0.31 0.30 N/A Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. a. Prepare journal entries for the foreian currency forward contract foreian currency firm commitment and export sale
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter13: Marketable Securities And Derivatives
Section: Chapter Questions
Problem 21E
Related questions
Question
100%
Required A
1. Record the sales agreement. 10.01.2020
2.Record entry for forward contract entered into by Mertag Company. 10.01.2020
3. Record the forward contract and recognize the change in fair value. 12.31.2020
4. Record the firm commitment and recognize the change in fair value. 12.31.2020
5. Record the entry to adjust the fair value of the forward contract. 01.31.2021
6. Record the entry to adjust the fair value of the firm commitment. 01.31.2021
7. Record the sale and receipt of PLN. 01.31.2021
8. Record settlement of forward contract. 01.31.2021
9.Record entry to close the firm commitment. 01.31.2021
Required B Determine the net benefit, if any, realized by Mertag from entering into the forward contract. (Do not round intermediate calculations. Negative amount should be entered with a minus sign.)
Net benefit:
Transcribed Image Text:On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods
on January 31, 2021, for a price of 1,000,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to
sell PLN 1,000,000 in four months (on January 31, 2021). U.S. dollar-Polish zloty exchange rates are as follows:
Forward Rate
Spot Rate
$ 0.25
(to January 31, 2021)
$ 0.29
Date
October 1, 2020
December 31, 2020
0.28
0.31
January 31, 2021
0.30
N/A
Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm
commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing
hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present
value can be ignored.
a. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale.
b. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.
Required A
Required B
Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale. (Do not round
intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
View transaction list
Transcribed Image Text:Journal entry worksheet
6 7 8 9
>
1
2
3 4 5
Record the sales agreement.
Note: Enter debits before credits.
Date
General Journal
Debit
Credit
10/01/2020
Record entry
Clear entry
View general journal
a. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale.
b. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Determine the net benefit, if any, realized by Mertag from entering into the forward contract. (Negative amount should be
entered with a minus sign. Do not round intermediate calculations.)
Net benefit
< Required A
Required B >
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