On October 1, 2019, Jarvis Co. made a credit sale to a foreign customer for 100,000 LCU
Fantastic news! We've Found the answer you've been seeking!
Question:
- On October 1, 2019, Jarvis Co. made a credit sale to a foreign customer for 100,000 LCU (a foreign currency). The payment is to be collected on Feb. 1, 2020. A forward exchange contract was acquired on Oct. 1, 2019 whereby Jarvis Co. was to pay 100,000 LCU and receive $78,000 in U.S. dollars on February 1, 2020. The company's borrowing rate is 12%. The present value factor for one month is 0.9901.
Required:
Assuming this is a cash flow hedge, calculate the relevant numbers and prepare journal entries for the accounts receivable of this sales transaction and forward contract on Oct. 1, 2019, Dec. 31, 2019 (fiscal year end), and Feb. 1, 2020. Assume that the forward contract premium/discount is to be amortized using the straight-line method.
The spot and forward rates for the LCU were as follows:
Date | Spot Rate | Forward rate for Feb. 1, 2020 | Dollar amount for 100,000 LCU based on Spot Rate | Dollar amount for 100,000 LCU based on Forward Rate |
10/1/2019 | $.83= 1 LCU | $.78=1 LCU | ||
12/31/2019 | $.85 = 1 LCU | $.80 = 1 LCU | ||
2/1/2020 | $.86 = 1 LCU | $.86 = 1 LCU |
Related Book For
Advanced Accounting
ISBN: 978-0077431808
10th edition
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
Posted Date: