On October 1, 2008, Fairchange Corporation ordered some equipment from a supplier for 300,000 euros. Delivery is to occur on November 15, 2008, while payment is expected to occur on December 15, 2008. The spot rates on October 1, November 15, and December 15, 2008, are $1.20, $1.30, and $1.28, respectively.

A. Assume that Fairchange entered into a forward contract on October 1, 2008, to hedge the firm commitment. The forward rates for euros for December 15 delivery were
October 1........ $1.23
November 15...... $1.30
December 15....... $1.28
Furthermore, assume the equipment was purchased on November 15 and was paid for on
December 15, 2008. Prepare all journal entries needed to record and settle the hedge and to record the purchase and payment of the equipment.
B. If the forward contract was not acquired, record the journal entries to purchase and pay for the equipment.

  • CreatedMarch 13, 2015
  • Files Included
Post your question