On June 1 Hammer Company purchased inventory from a foreign supplier at a price of 75,000 FCU (FCU is “foreign currency units”) Hammer will make payment in three months on September 1. On June 1, Hammer entered into a forward contract maturing on September 1 as a fair value hedge of its FCU lliability. Prepare all journal entries, including adjusting entries, to record the transaction and the forward contract. Date Spot rate Forward rate* June 1 $0.80 $0.85 June 30 $0.83 $0.84 Sept. 1 $0.86 *Forward rate is for a contract written on June 1 to mature on September 1.
On June 1 Hammer Company purchased inventory from a foreign supplier at a price of 75,000 FCU (FCU is “foreign currency units”) Hammer will make payment in three months on September 1. On June 1, Hammer entered into a forward contract maturing on September 1 as a fair value hedge of its FCU lliability. Prepare all journal entries, including adjusting entries, to record the transaction and the forward contract. Date Spot rate Forward rate* June 1 $0.80 $0.85 June 30 $0.83 $0.84 Sept. 1 $0.86 *Forward rate is for a contract written on June 1 to mature on September 1.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On June 1 Hammer Company purchased inventory from a foreign
supplier at a price of 75,000 FCU (FCU is “foreign currency units”)
Hammer will make payment in three months on September 1.
On June 1, Hammer entered into a forward contract
maturing on September 1 as a fair value hedge
of its FCU lliability.
Prepare all
the transaction and the forward contract.
Date Spot rate Forward rate*
June 1 $0.80 $0.85
June 30 $0.83 $0.84
Sept. 1 $0.86
*Forward rate is for a contract written on June 1 to mature on September 1.
(Disregard the impact of any interest factor or discount rate.)
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