Cherry Company, on September 5, 2015, contracts to sell wheat for 2,000,000 to For Company The wheat
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Question:
Cherry Company, on September 5, 2015, contracts to sell wheat for €2,000,000 to For Company The wheat will be delivered March 1, 2016, and payment is due April 1, 2016. The year-end is December 31.
Cherry Co. hedges the commitment right away and designates this as a cash flow hedge.
Cherry Co. will account for the hedge using the gross method. The settlement date is Apr. 1.
Rates: | spot rate | forward rate to Feb. 15, 2016 | ||
sign contract | sept. 5 | 1.600 | 1.610 | |
year-end | Dec. 31 | 1.615 | 1.622 | |
delivery date | March 1 | 1.630 | 1.640 | |
settlement date | Apr. 1 | 1.645 |
Required:
Prepare all journal entries related to the hedge and the underlying purchase or sale. Use the gross method (record the hedge using a JE; not a memorandum entry) Prepare journal entries in standard form.
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