On October 1, 2014, Fair change Corporation ordered some equipment from a supplier for 300,000 Euros. Delivery

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On October 1, 2014, Fair change Corporation ordered some equipment from a supplier for 300,000 Euros. Delivery is to occur on November 15, 2014, while payment is expected to occur on December 15, 2014. The spot rates on October 1, November 15, and December 15, 2014, are $1.20, $1.30, and $1.28, respectively.

Required:

A. Assume that Fair change entered into a forward contract on October 1, 2014, 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, 2014. 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.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Advanced Accounting

ISBN: 978-1119119364

6th edition

Authors: Debra Jeter, Paul Chaney

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