Krispy Kreme Doughnuts, Inc. has franchises operating outside the U.S. and invests in derivatives to hedge its
Question:
Krispy Kreme Doughnuts, Inc. has franchises operating outside the U.S. and invests in derivatives to hedge its foreign currency risk. Although it tries to hedge its various positions, on December 16, 2016, Krispy Kreme finds itself with the following unhedged forward contracts: Agreement to purchase 10,000,000 Hong Kong dollars (HK\($)\) in 30 days at \($0.13/HK$.\) Agreement to sell 10,000,000 Singapore dollars (S\($)\) in 30 days at \($0.84/S$.\) Relevant exchange rates are:
Required
a. What are the correct balances for the above contracts at December 16, 2016?
b. Prepare the journal entries made by Krispy Kreme on December 31, 2016, and January 15, 2017, assuming that the balances of the forward contracts are properly stated at December 16, 2016, and that the company closes its books on December 31.
Step by Step Answer:
