Accounting for Forward Contracts-Hedging and Speculation Futura Corporation, a calendar-year corporation, is an active trader in foreign
Question:
1. Sold kr 2,000,000 forward to hedge a forthcoming kr 2,000,000 sale to a Danish firm; the sale price and January 29,2013 delivery date have been negotiated and the customer will pay upon delivery.
2. Purchased kr 3,000,000 forward to hedge a forecasted purchase from a Danish supplier. Delivery and payment on the forecasted purchase takes place on January 29, 2013.
3. Sold k r l,000,000 forward in anticipation of a fall in the spot rate.
Relevant exchange rates ($/kr) are as follows:
Required
a. Prepare the journal entries made by Futura on December 31, 2012, and January 29, 2013, regarding the above transactions.
b. Indicate how the above transactions would be disclosed on Futura's December 31, 2012, balance sheet and income statement.
c. Comment on the specific use of the forward market by Futura.
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Related Book For
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
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