On August 1, 2023, a U.S. company signed a noncancelable order to purchase inventory from a company
Question:
On August 1, 2023, a U.S. company signed a noncancelable order to purchase inventory from a company located in Japan. The contracted price was 6,000,000 yen, payable on January 31, 2024. The machine will be delivered to the U.S. Company on November 1, 2023.
In order to hedge against a strengthening of the yen, the U.S. Company entered into a forward exchange contract on August 1, 2023, to purchase 6,000,000 yen on January 31, 2024. The forward contract was acquired to hedge the financial component of the foreign currency firm commitment.
On November 1, 2023, the transaction date, the U.S. Company received the inventory from the Japanese company. Spot and forward exchange rates on various dates follow:
Spot Rate
Forward Exchange
($/1 yen)
August 1, 2023
November 1, 2023
December 31, 2023
January 31, 2024
Required:
A- Prepare all journal entries until the arrival of the merchandise on 11/1/2023, for the U.S. Company, which pertain to the acquisition of the inventory and the forward exchange contract. Indicate the date next to each journal entry. Assume a December 31 year-end. (HINT: the answer only 4 journal entries, 1 for 8/01/2023, and 3 for 11/1/2023)
B- Show overall gain or loss for the transactions recorded.
Horngrens Accounting Volume 1
ISBN: 9780136889373
12th Canadian Edition
Authors: Tracie Miller Nobles, Brenda Mattison, Ella Mae Matsumura