Consider the following information:

1. On December 1, 2011, a U.S. firm plans to sell a piece of equipment [with an asking price of 200,000 units of a foreign currency (FC)] during January of 2012. The transaction is probable, and the transaction is to be denominated in euros.

2. The company enters into a forward contract on December 1, 2011 to sell 200,000 FC on February 1, 2012, for $1.02.

3. Spot rates and the forward rates for January 31, 2012, settlement were as follows (dollars per euro)

4. On January 31, the equipment was sold for 200,000 FC. The cost of the equipment was $170,000.
Required:
Prepare all journal entries needed on December 1, December 31, January 31, and February 1 to account for the forecasted transaction, the forward contract, and the transaction to sell the equipment.

Transcribed Image Text:

December 1, 2011 Balance sheet date (12/31/11) January 31 and February 1, 2012 Spot Rate $1.04 $1.01 $0.99 Forward Rate for 2/1/12 $1.02 $1.00