Cleveland Company is a U.S. firm with a U.S. dollar

Cleveland Company is a U.S. firm with a U.S. dollar functional currency that manufactures copper-related products. It forecasts that it will sell 5,000 feet of copper tubing to one of its largest customers at a price of ¥50,000,000. Although this sale has not been firmly committed, Cleveland expects that the sale will occur in six months on June 30, 2022. Thus, Cleveland is exposed to changes in foreign currency exchange rates. To reduce this exposure, Cleveland enters into a six-month foreign currency exchange forward contract with a third-party dealer on January 1, 2022, to deliver ¥ and receive US$. The foreign exchange contract has the following terms:
Contract amount: ¥50,000,000
Maturity date: June 30, 2022
Forward contract rate: ¥105.00 = US $1.00

Yen / US$ Exchange rates:

Spot rate Forward rate for June 30 Date January 1 March 31 ¥100.00/US $1.00 ¥102.00/US $1.00 ¥110.00/US $1.00 ¥105.0

Cleveland obtains the fair values of the forward exchange contract from the third-party dealer.

January 1 March 31 June 30 Swap fair value $0 $12,900 $21,645

1. Calculate the net settlement on June 30, 2022.
2. Prepare the journal entries for the period January 1 to June 30, 2022, to record the forward contract, necessary adjustments for changes in fair value, and settlement.

A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the...


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