Question $2$ Not yet answe

Accounting for Forward Contracts$$Hedging and Speculation

Futura Corporation, a calendar$-$year corporation, is an active trader in foreign exchange, to hedge its international activities and for

outright speculation. In particular, it is active in the forward market for krone $($kr$),$ the currency of Denmark. On November $1,2022,$

Futura entered into the following forward contracts. The contracts were settled on January $29,2023.$

$1.$ Sold kr$2,000,000$ forward to hedge a forthcoming kr$2,000,000$ sale to a Danish firm; the sale price and January $29,2023$ delivery date have been

negotiated and the customer will pay upon delivery.

$2.$ Purchased kr$3,000,000$ forward to hedge a forecasted purchase from a Danish supplier. Delivery and payment on the forecasted purchase takes

place on January $29,2023.$

$3.$ Sold kr$1,000,000$ forward in anticipation of a fall in the spot rate.

Relevant exchange rates $($$$/$kr$)$ are as follows:

November $1,2022$ December $31,2022$ January $29,2023$

Spot rate $$0\mathrm{.}162$ $$0\mathrm{.}172$ $$0\mathrm{.}192$

Thirty$-$day forward rate $0\mathrm{.}1450\mathrm{.}1650\mathrm{.}185$

Sixty$-$day forward rate $0\mathrm{.}1250\mathrm{.}1450\mathrm{.}190$

Ninety$-$day forward rate $0\mathrm{.}1050\mathrm{.}1320\mathrm{.}195$

Required

$($a$)$ Prepare the journal entries made by Futura on December $31,2022,$ and January $29,2023,$ regarding the above transactions.

General Journal

Date Description Debit Credit

Dec. $31$

To record change in value of forward sale contract #$1.$

To record change in value of firm commitment related to contract #$1.$

To record change in value of forward purchase contract #$2.$

To record gain or loss on speculative contract #$3.$

Jan. $29$

To record change in value of forward sale contract #$1$ since December $31.$

To record change in value of firm commitment related to contract #$1.$

To record sale to Danish customer.

To adjust sales revenue for the accumulated balance in the firm commitment account.

Investment in forward contract

To record the settlement of forward sale contract #$1.$

To record change in value of forward purchase contract #$2.$

Cash

To record the settlement of forward purchase contract #$2.$

To record purchase #$2$ at the current spot rate.

To record gain or loss on forward sale contract #$3.$

To record purchase of krone in the spot market, in anticipation of settlement of forward sale contract #$3.$

Investment in forward contract

To record settlement of forward sale contract #$3.$

$($b$)$ Indicate how the above transactions would be disclosed on Futura$$s December $31,2022,$ balance sheet and $2022$ income statement.

December $31,2022$ Balance Sheet:

Investment in forward contracts has a net balance of:

Firm commitment has a net balance of:

Other comprehensive income is by:

$2022$ Income Statement:

Net exchange on speculative activity is:

$

$

$

$

Accounting for Forward Contracts$-$Hedging and Speculation

Futura Corporation, a calendar$-$year corporation, is an active trader in foreign exchange, to hedge its international activities and for

outright speculation. In particular, it is active in the forward market for krone $($kr$),$ the currency of Denmark. On November $1,2022,$

Futura entered into the following forward contracts. The contracts were settled on January $29,2023.$

Sold kr$2,000,000$ forward to hedge a forthcoming kr$2,000,000$ sale to a Danish firm; the sale price and January $29,2023$ delivery date have been

negotiated and the customer will pay upon delivery.

Purchased kr$3,000,000$ forward to hedge a forecasted purchase from a Danish supplier. Delivery and payment on the forecasted purchase takes

place on January $29,2023.$

Sold kr$1,000,000$ forward in anticipation of a fall in the spot rate.

Relevant exchange rates $($ $$//$kr $)$ are as follows:

Required

$($a$)$ Prepare the journal entries made by Futura on December $31,2022,$ and January $29,2023,$ regarding the above transactions.