On March 15, 2017, Hunt Brands, a U.S. company, purchased merchandise from a South African company at
Question:
On March 15, 2017, Hunt Brands, a U.S. company, purchased merchandise from a South African company at a price of R1,000,000, payable in two months in rands. To hedge its exposed liability position, Hunt entered a forward contract for purchase of R1,000,000 on May 15, 2017. On May 15, Hunt closed the forward contract and used the rands to pay its supplier. The merchandise was sold to a U.S. customer for \($110,000\) in cash on June 5, 2017. Hunt's accounting year ends December 31. Exchange rates (\($/R)\) are as follows:
Required
a. Prepare the journal entries Hunt Brands made on March 15, May 15, and June 5, 2017. Assume Hunt records cost of goods sold at the time of sale.
b. Calculate the cash gain or loss realized by Hunt Brands by hedging compared with not hedging.
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