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 1,030,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,030,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows: Date Spot Rate Forward Rate (to January 31, 2021) October 1, 2020 $ 0.26 $ 0.30 December 31, 2020 0.29 0.33 January 31, 2021 0.31 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. Prepare journal entries for the foreign currency forward contract, foreign 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 1,030,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,030,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows: Date Spot Rate Forward Rate (to January 31, 2021) October 1, 2020 $ 0.26 $ 0.30 December 31, 2020 0.29 0.33 January 31, 2021 0.31 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. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale.
Century 21 Accounting General Journal
11th Edition
ISBN:9781337680059
Author:Gilbertson
Publisher:Gilbertson
Chapter24: Recording International And Internet Sales
Section: Chapter Questions
Problem 1CP
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Question
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 1,030,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,030,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows:
| Date | Spot Rate | Forward Rate (to January 31, 2021) |
||||
| October 1, 2020 | $ | 0.26 | $ | 0.30 | ||
| December 31, 2020 | 0.29 | 0.33 | ||||
| January 31, 2021 | 0.31 | 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.
- Prepare
journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale.
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
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
X:
....
Record the sales agreement.
9
>
Record entry for forward contract entered into by Mertag
Company.
2
3
Record the forward contract and recognize the change in
fair value.
Record the firm commitment and recognize the change in
Credit
fair value.
5
Record the entry to adjust the fair value of the forward
contract.
6 Record the entry to adjust the fair value of the firm
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
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
X:
9
4
Record the firm commitment and recognize the change in
fair value.
Record the entry to adjust the fair value of the forward
contract.
Record the entry to adjust the fair value of the firm
commitment.
Credit
7
Record the sale and receipt of PLN.
8
Record settlement of forward contract.
Record entry to close the firm commitment.
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