On August 1, Year 1, Huntington Corporation placed an order to purchase merchandise from a foreign supplier
Question:
On August 1, Year 1, Huntington Corporation placed an order to purchase merchandise from a foreign supplier at a price of 100,000 dinars. The merchandise is received and paid for on October 31, Year 1, and is fully consumed by December 31, Year 1. On August 1, Huntington entered into a forward contract to purchase 100,000 dinars in three months at the agreed-on forward rate. The forward contract is properly designated as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured through reference to changes in the forward rate. Relevant exchange rates for the dinar are as follows:
Required:
Prepare journal entries for the forward contract and firm commitment. What is the impact on net income in Year 1? What is the net cash outflow on the purchase of merchandise from the foreign customer?
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