Assume on November 2, 2020, Pinay Cosmetics, Inc. ordered merchandise from a foreign company for delivery to Pinay on January 31, 2021 at a price of FC1,000,000. Also on November 2, 2020, Pinay entered into a forward contract to purchase FC1,000,000 for delivery on January 31, 2021. Exchange rates for the foreign currency are: 

                                               11/2/20           12/31/20         1/31/21

           Spot rate          Php     0.75                0.76                0.79    

           30-day forward            0.76                0.80                0.79

           90-day forward           0.78                0.79                0.80

 

Required: Write journal entries for the information.

Problem:

On December 1, 2020, Chile Company paid 6,000 to purchase a 90-day put option for FC400,000. The option's purpose is to hedge an exposed accounts receivable of FC400,000 from a sale of merchandise. The merchandise is to be shipped on December 1, 2020 payment for which is due on March 1, 2021. Relevant rates and market values at different dates are as follows:

                                                           12/01/20         12/31/20         03/01/21

           Spot rate (market price)           1.20                1.12                1.13

           Strike price (exercise price)      1.20                1.20                1.20

           Fair value of put option            6,000              36,000           28,000

 

Required: Prepare the journal entries for the  information. 

Answer rating: 100% (QA)

Journal Entries for Pinay Cosmetics Inc November 2 2020 Accounts Payable Foreign Com... View the full answer