1 6. FOLLOWING ARE THE JOURNAL ENTRIES THAT DEMONSTRATES THE PROPER ACCOUNTING FOR A CASH FLOW HEDGE 2 FOR EACH ENTRY: 1. EXPLAIN THE JOURNAL ENTRY, 2. DISCUSS HOW THE DOLLAR NUMBERS WERE DETERMINED AND 3. EXPLAIN THE RATIONALE 3 FOR THE ENTRY. AS AN ILLUSTRATIONI COMPLETED THE FIRST ENTRY CASH MARKET FORWARD MARKET SELLS GOODS FOR 1 MILLION EUROS SPOT RATE.92 SELLS 1 MILLION MAR EURO 90.5 10 EURO SPOT RATE .93 10000 MAR EURO.916 10783 12 13 14 15 16 17 18 19 20 21 PYMT RECD: EURO SPOT RATE .90 30000 DELIVER EURO.90 15783 910000 BALANCE SH DR INCOME STMT CR DR CR ACCOUNTS RECEIVABLE SALES 920000 1THIS ENTRY RECORDS THE SALE OF 1,000,000 GOODS TO A FOREIGN ENTITY 2. THE DOLLAR AMOUNT IS THE 1,000,000 IN EURO CONVERTED TO US DOLLARS (1,000,000 .92) 3. GAAP REQUIRES INTERNATIONAL SALES TO BE RECORDED IN US DOLLARS ACCOUNTS RECEIVABLE 10000 23 24 25 26 27 28 29 30 31 32 FOREIGN EXCHANGE GAIN 10000 ACCUM OTHER COMP INCOME $10,783 FORWARD CONTRACT 10783 34 35 36 37 38 39 40 41 42 43 LOSS ON FORWARD CONTRACT ACCUM OTHER COMP INCOME 10000 10000 DISCOUNT EXPENSE 5000 ACCUM OTHER COMP INC 5000 15000 930000 45 46 1 6. FOLLOWING ARE THE JOURNAL ENTRIES THAT DEMONSTRATES THE PROPER ACCOUNTING FOR A CASH FLOW HEDGE 2 FOR EACH ENTRY: 1. EXPLAIN THE JOURNAL ENTRY, 2. DISCUSS HOW THE DOLLAR NUMBERS WERE DETERMINED AND 3. EXPLAIN THE RATIONALE 3 FOR THE ENTRY. AS AN ILLUSTRATIONI COMPLETED THE FIRST ENTRY CASH MARKET FORWARD MARKET SELLS GOODS FOR 1 MILLION EUROS SPOT RATE.92 SELLS 1 MILLION MAR EURO 90.5 10 EURO SPOT RATE .93 10000 MAR EURO.916 10783 12 13 14 15 16 17 18 19 20 21 PYMT RECD: EURO SPOT RATE .90 30000 DELIVER EURO.90 15783 910000 BALANCE SH DR INCOME STMT CR DR CR ACCOUNTS RECEIVABLE SALES 920000 1THIS ENTRY RECORDS THE SALE OF 1,000,000 GOODS TO A FOREIGN ENTITY 2. THE DOLLAR AMOUNT IS THE 1,000,000 IN EURO CONVERTED TO US DOLLARS (1,000,000 .92) 3. GAAP REQUIRES INTERNATIONAL SALES TO BE RECORDED IN US DOLLARS ACCOUNTS RECEIVABLE 10000 23 24 25 26 27 28 29 30 31 32 FOREIGN EXCHANGE GAIN 10000 ACCUM OTHER COMP INCOME $10,783 FORWARD CONTRACT 10783 34 35 36 37 38 39 40 41 42 43 LOSS ON FORWARD CONTRACT ACCUM OTHER COMP INCOME 10000 10000 DISCOUNT EXPENSE 5000 ACCUM OTHER COMP INC 5000 15000 930000 45 46