1. On October 1, 2019, Jarvis Co. made a credit sale to a foreign customer for 100,000 LCU (a foreign currency). The payment is to be collected on Feb. 1, 2020. A forward exchange contract was acquired on Oct. 1, 2019 whereby Jarvis Co. was to pay 100,000 LCU and receive $78,000 in U.S. dollars on February 1, 2020. The company's borrowing rate is 12%. The present value factor for one month is 0.9901.

Required:

Assuming this is a cash flow hedge, calculate the relevant numbers and prepare journal entries for the accounts receivable of this sales transaction and forward contract on Oct. 1, 2019, Dec. 31, 2019 (fiscal year end), and Feb. 1, 2020. Assume that the forward contract premium/discount is to be amortized using the straight-line method.

The spot and forward rates for the LCU were as follows:

Date	Spot Rate	Forward rate for Feb. 1, 2020	Dollar amount for 100,000 LCU based on Spot Rate	Dollar amount for 100,000 LCU based on Forward Rate
10/1/2019	$.83= 1 LCU	$.78=1 LCU
12/31/2019	$.85 = 1 LCU	$.80 = 1 LCU
2/1/2020	$.86 = 1 LCU	$.86 = 1 LCU

  

Answer rating: 100% (QA)

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