Bat, a U.S. corporation, anticipates a contract based on December 2, 2016, discussions to sell heavy equipment to Ram of Scotland for 500,000 British pounds. The equipment is likely to be delivered and the amount collected on March 1, 2017. In order to hedge its anticipated commitment, Bat entered into a forward contract on December 2 to sell 500,000 British

Chapter 13, Problems #7

Bat, a U.S. corporation, anticipates a contract based on December 2, 2016, discussions to sell heavy equipment to Ram of Scotland for 500,000 British pounds. The equipment is likely to be delivered and the amount collected on March 1, 2017.
In order to hedge its anticipated commitment, Bat entered into a forward contract on December 2 to sell 500,000 British pounds for delivery on March 1. The forward contract meets all the conditions of ASC Topic 815 for a cash-flow hedge of an anticipated foreign currency commitment.
A 6 percent interest rate is appropriate. The forward contract is settled net. Exchange rates for British pounds on selected dates are as follows:

REQUIRED:
Prepare the necessary journal entries on Bat's books to account for:
1. The forward contract on December 2, 2016.
2. Year-end adjustments relating to the forward contract on December 31, 2016.
3. The delivery of the equipment and settlement of all accounts with Ram and the exchange broker on March 1, 2017.

Broker
A broker is someone or something that acts as an intermediary third party, managing transactions between two other entities. A broker is a person or company authorized to buy and sell stocks or other investments. They are the ones responsible for...