Global Motors is a U.S. corporation that purchases automobiles from European manufacturers for distribution in the United

Question:

Global Motors is a U.S. corporation that purchases automobiles from European manufacturers for distribution in the United States. A recent purchase involved the following events:

Nov.12 Purchased automobiles from Stockholm Motors in Swedish kronor for Sk20,000,000, payable in 60 days. Current exchange rate,$0.1286 per krona. (Global uses the perpetual inventory system.)

Dec. 31 Made year-end adjusting entry relating to the Sk20,000,000 account payable to Stockholm Motors. Current exchange rate, $0.1288 per krona.

Jan. 11 Issued a check to World Bank for $2,566,800 in full payment of the account payable to Stockholm Motors.

Instructions

a. Prepare in general journal form the entries necessary to record the preceding events.

b. Compute the exchange rate (price) of the krona in U.S. dollars on January 11.

c. Explain a hedging technique that Global might have used to protect itself from the possibility of losses resulting from a significant increase in the exchange rate for the krona.

Corporation
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The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...