On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign
Question:
On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 180,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 280,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply:
As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 280,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021.
- Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency forward contract and import purchase.
- What is the impact on net income in 2020?
- What is the impact on net income in 2021?
Required A: (Total of 9 journal entries)
Required B & C
Advanced Accounting
ISBN: 9781260247824
14th Edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik