Answered: P 13-6 Foreign currency hedge, firm…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 22E

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P 13-6 Foreign currency hedge, firm purchase commitment

On October 2, 2016, Flx, a U.S. company, entered into a forward contract to purchase 50,000 euros for delivery in 180 days at a forward rate of $0.6350. The forward contract is a derivative instrument hedging an identifiable foreign currency purchase commitment for inventory as defined in ASC Topic 815. The spot rate for euros on October 2, 2016 was $0.6250. Spot rates and forward rates for euros on December 31, 2016, and March 31, 2017, are as follows:

	December 31, 2016	March 31, 2017
Spot rate	$0.6390	$0.6560
Forward rates
30-day futures	$0.6410	$0.6575
90-day futures	$0.6420	$0.6615
180-day futures	$0.6450	$0.6680

Required

Prepare journal entries to:

Record the forward contract on October 2, 2016
Adjust the accounts at December 31, 2016
Account for settlement of the forward contract and record and adjust the related cash purchase on March 31, 2017

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