Problem 12-10

On October 1, 2014, Fairchange Corporation ordered some equipment from a supplier for 304,000 euros. Delivery and payment are to occur on November 15, 2014. The spot rates on October 1 and November 15, 2014, are $1.20 and $1.30, respectively.

(a)

Assume that Fairchange entered into a forward contract on October 1, 2014, to hedge the firm commitment. The forward rates for euros for November 15 delivery were

October 1$1.23November 15$1.30

Furthermore, assume the equipment was purchased and paid for on November 15. Prepare all journal entries needed to record and settle the hedge and to record the purchase of the equipment