On December 1, 2019, Wahlberg Company forecasted a purchase of inventory that would occur on January 30, 2020, at a cost of 350,000 FC. Due to its concern about the weakening dollar, the company bought a contract on December 1, 2019, for the delivery of 350,000 FC on January 30, 2020. Management designated the forward contact as a cash flow hedge and decided that the time value of the forward contract, represented by the contract premium or discount, would be excluded from the assessment of hedge effectiveness and amortized over the life of the contract on a straight-line basis. On January 30, Wahlberg purchased the inventory at a cost of 355,000 FC. On February 10, the company sold the inventory for $900,000. Selected spot and forward rates are as follows:

Spot rate Forward Rate

December 1 $2.200 $2.216

December 31 2.280 2.270

January 30 2.300 2.300

Assuming the company has a December 31 year-end, prepare the necessary journal entries to record the above transactions. Changes in the forward rates are to be discounted at a 6% rate.

Answer rating: 100% (QA)

Date Account Titles and Explanation Debit Credit Dec 1 Inventory 350000 Forward contract liability 3... View the full answer