On May 5, 2005, Roy Corp. purchased inventory from a Japanese supplier, and gave the supplier a

Question:

On May 5, 2005, Roy Corp. purchased inventory from a Japanese supplier, and gave the supplier a 90-day note for ¥20,000,000. On the same date, Roy entered a forward contract with its bank to receive ¥20,000,000 in 90 days. The spot rate for the yen was $0.0095. The forward rate was $0.0100.


Required:

Prepare general journal entries to record the purchase, the hedge, and final settlement of both the note and the hedge, assuming each of the following spot rates at the settlement date:

a. $0.0095

b. $0.0100

c. $0.0093

d. $0.0102

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