Part 1: Using the Assignment Option 1 spreadsheet (linked at the bottom of this page), complete the following hedging transaction.

Required: Complete journal entries to hedge an unrecognized foreign currency firm commitment as a foreign currency fair value hedge.

Follow instructions from the worksheet carefully. Use formulas to enter amounts and data. Show details of your calculations and processes. Explain each journal entry or why one was omitted.

Journal entries for hedging an unrecognized Foreign Currency Firm commitment: A Foreign Currency Fair Value Hedge

Journal Entries:

Debit

Credit

A

Foreign Currency Receivable from Exchange Broker

10/1/20x7

Dollars Payable to Exchange Broker($)

(Record signed forward exchange contract for receipt of 5,000 Euro in 210 days)

B.

11/1/20x7

Foreign Currency Receivable from Exchange Broker

Foreign Currency Transaction Gain

(Record adjustment of forward contract to fair Value)

C.

11/1/20x7

Foreign Currency Transaction loss

Firm Commitment

11/1/20x7

Inventory

Firm Commitment

Accounts Payable (Euro)

12/31/20x7

Foreign Currency Receivable (EURO)

Foreign Currency Gain

Dec 31 20x7

Foreign Currency Loss

Accounts Payable

4/28/20x7

Foreign Currency loss

Foreign Currency Receivable

Accts Payable

Foreign Currency Gain

4/28/20x7

Dollars Payable to Broker

Cash

Foreign Currency Units

Foreign Currency Rec

Acct Payable

Foreign Currency Units

Journal Entries for Hedging an Unrecognied Foreign Currency Firm commitment: A Foreign Currency Fair Value Hedge Information 1) 2) 3) 4) 5) 6) Push Corp. operates in the United States. It uses the Euro for local currency transactions. On Oct 01, 20x7, Push Corp. orders inventory items from German Corporation Within 30 days, the delivery of the German inventory parts will take place, Nov 1, 20x7 The contract price is Euro 5,000 to be paid in 180 days, 6 months. On Oct 01, 20x7, Push Corp. hedges its foreign currency payable commitment with a forward exchange contract to receive Euro 5,000 in 210 days (30+180) Relevant exchange Rates Spot Rate Forward Exchange Rate 10/1/20x7 11/1/20x7 12/31/20x7 28-Apr-18 210 days 180 days 120 days 1.1 1.25 1.15 1.3 1.2 1.35 1.15