Question: On October 1, 2008, Fairchange Corporation ordered some equipment from a supplier for 300,000 euros. Delivery and payment are to occur on November 15, 2008.

On October 1, 2008, Fairchange Corporation ordered some equipment from a supplier for 300,000 euros. Delivery and payment are to occur on November 15, 2008. The spot rates on October 1 and November 15, 2008, are $1.20 and $1.30, respectively.

Required:

A. Assume that Fairchange entered into a forward contract on October 1, 2008, to hedge the firm commitment. The forward rates for euros for November 15 delivery were October 1........ $1.23

November 15....$1.30

Furthermore, assume the equipment was purchased and paid for on November 15. Prepare all journal entries needed to record and settle the hedge and to record the purchase of the equipment.

B. If the forward contract was not acquired, record the journal entry to purchase the equipment.

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