Question: Hedging a Foreign Currency Commitment-Effects on Income On October 1, 2013. Ellis Corporation agreed to sell 50,000 electric motors to a Swiss customer for 500,000

Hedging a Foreign Currency Commitment-Effects on Income On October 1, 2013. Ellis agreed to sell 50,000 electric motors to a Swiss customer for 500,000 swiss francs (CHF). Delivery is to be made on November 30, 2013, and payment is to be received on January 31, 2014. Concurrently, Ellis sold CHF 500,000 forward for delivery on January 31, 2014, for a total contract price of $634,000. Ellis closes its books annually on December 31. Current spot rates and forward rates ($/CHF) for delivery on January 31, 2014, are as follows:

Required
a. Prepare all journal entries relative to the sale and the forward contract during 2013 and 2014.
b. Prepare a schedule showing the income statement effects of the above events in each of the two years.
c. Did Ellis gain or lose from hedging the foreign currency commitment? Explain.

Spot Rate (S/CHF) Forward Rate (S/CHF) October 1, 2013. November 30, 2013c December 31, 2013n... January 31, 2014 ana $1.220 1.250 1.240 1.280 $1.268 1310 1.290 1.280

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