Question No: 3 Numerical Problems: SLO: 2 & 3.

Note: Answer the following questions:

Question No: 1 SLO: 1

3. On December 1, 2013, Dorn Corporation agreed to purchase a machine to be manufactured by a company in Brazil. The purchase price is 1,150,000 Brazilian reals. To hedge against fluctuations in the exchange rate, Dorn entered into a forward contract on December 1 to buy 1,150,000 reals on April 1, the agreed date of machine delivery, for $0.375 per real.

The following exchange rates were quoted:

Forward Rate

Date Spot Rate (Delivery on 4/1)

December 1 0.390 0.375

December 31 0.370 0.373

April 1 0.385 --

Required:

Prepare journal entries necessary for Dorn during 2013 and 2014 to account for the transactions described