Question

On September 1, 2013, Turner Corporation places an order with a Japanese supplier for manufacturing equipment for delivery on June 30, 2014. The purchase is denominated in Japanese yen in the amount of ¥5,200,000. Turner Corporation purchases a forward currency contract on September 1, 2013, for the purchase of ¥5,200,000 at a forward exchange rate for settlement on June 30, 2014, of $1 = ¥102. Turner Corporation designates the forward contract as a fair value hedge. The forward exchange rate on December 31, 2013, for settlement on June 30, 2014, is $1 = ¥100, and the actual exchange rate on June 30, 2014, is $1 = ¥95. The following summarizes this information:


a. Using a discount rate of 8% per year, what is the fair value of the forward contract on December 31, 2013? Is the amount an asset or a liability?
b. What amount would Turner Corporation report on its December 31, 2013, balance sheet related to its commitment to purchase the equipment?
c. What is the fair value of the forward contract on June 30, 2014, just before settling the transaction?
d. Give the journal entry on June 30, 2014, to purchase the equipment.
e. Give the journal entry on June 30, 2014, to settle the forwardcontract.


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  • CreatedMarch 04, 2014
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