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1. (25 pts) Shannon Company has agreed to buy on September 1, 2018 Inventory for delivery on March 1, 2019 from a German supplier. The
| 1. (25 pts) Shannon Company has agreed to buy on September 1, 2018 Inventory for delivery on March 1, 2019 from a | ||||||||||
| German supplier. The cost of the equipment is | 500,000 | and the bill will be settled | ||||||||
| in Euros. The purchase qualfies as a firm purchase commitment, as a contract was signed on September 1, 2018. | ||||||||||
| Shannon enters into a forward contract to buy the needed Euros on March 1 at the 180 day forward rate. | ||||||||||
| Exchange rates for 1.0 Euro are as follows | Sep 1 | Dec 31 | March 1 | |||||||
| Spot | $1.34 | $1.39 | $1.43 | |||||||
| 180 day forward | $1.38 | $1.44 | $1.45 | |||||||
| 60 day forward | $1.37 | $1.40 | $1.44 | |||||||
| Record the entries need on September 1. | Dr. | Cr. | ||||||||
| Record the entries needed at year end, December 31. | Dr. | Cr. | ||||||||
| Record the entries need on March 1, including the purchase of the inventory. | ||||||||||
| Assume instead that this is not a firm purchase commitment but rather an anticipated purchase. | ||||||||||
| Record the entries needed at September 1. | Dr. | Cr. | ||||||||
| Record the entries needed at December 31. | ||||||||||
| Assume that the inventory was never purchased. Record | ||||||||||
| the entries needed on March 1. | ||||||||||
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