Question

Consider the following information:
On December 1, 2008, a U.S. firm plans to purchase a piece of equipment (with an asking price of 100,000 francs) in Switzerland during January of 2009. The transaction is probable, and the transaction is to be denominated in euros.
2. On December 1, 2008, the company enters into a forward contract to buy 100,000 francs for $1.01 on January 31, 2009.
3. Spot rates and the forward rates for January 31, 2009, settlement were as follows (dollars per franc):


4. On February 1, the equipment was purchased for 100,000 francs.

Required:
A. Prepare all journal entries needed on December 1, December 31, January 31, and February 1 to account for the forecasted transaction, the forward contract, and the transaction to buy the equipment.
B. When should the company reclassify any amounts reported in other accumulated comprehensive income as a result of the cash flow hedge?


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  • CreatedMarch 13, 2015
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