# Wil has 100,000 units of widgets in its inventory on October 1, 2016. Wil purchased them for \$1 per unit one month ago. It hedges the value of the widgets by entering into a forward contract to sell 100,000 widgets

Wil has 100,000 units of widgets in its inventory on October 1, 2016. Wil purchased them for \$1 per unit one month ago. It hedges the value of the widgets by entering into a forward contract to sell 100,000 widgets on January 31, 2017, for \$2 each. The contract is to be settled net. Assume that a discount rate of 6 percent is reasonable.

Prepare the journal entries to properly account for this hedge of an existing asset on the following dates:

1. October 1, 2016, when the widget price is \$1.50

2. December 31, 2016, when the widget price is \$2.50

3. January 31, 2017, when the widget price is \$2.30

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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