On June 1, 20x5, a Victor Inc. placed an order for equipment with a United States manufacturer. 

The price of the equipment is 500,000 USD. The equipment is expected to be delivered on March 31, 20x6, at which time the payment is due. In order to protect itself from fluctuations in interest rates, the company entered into a forward contract to purchase 500,000USD on March 31, 20x6, at 1 USD = $1.36. 

At December 31, 20x5, the forward rate for a three-month forward contract ending on March 31, 20x6, was 1 USD = $1.41 and the spot rate was 1 USD = $1.40. 

No entries were made relative to this contract. The company made a decision on March 31, 20x5 to use hedge accounting and wishes to classify it as a cash flow hedge. 

Required – 

Prepare the journal entry relating to this transaction at December 31, 20x5.

Answer rating: 100% (QA)

Assumption that on the date of transaction the the rate 136 against USD is remin prevalent the dat e... View the full answer