$1$

On March $1,$ Derby Corporation $($a U$.$S$.-$based company$)$ expects to order merchandise from a supplier in Norway in three months. On March $1,$ when the spot rate is $$0\mathrm{.}28$ per Norwegian krone, Derby enters into a forward contract to purchase $617,500$ Norwegian kroner at a three$-$month forward rate of $$0\mathrm{.}29.$ Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight$-$line basis. At the end of three months, when the spot rate is $$0\mathrm{.}286$ per Norwegian krone, Derby orders and receives the merchandise, paying $617,500$ kroner. The merchandise is sold within $30$ days.

$10$

points

Required:

a$-1.$ Prepare all journal entries for Derby Corporation related to this transaction and hedge.

a$-2.$ What amount should Derby Corporation report in the current year's net income as cost of goods sold?

b$.$ What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss?

Complete this question by entering your answers in the tabs below.

Prepare all journal entries for Derby Corporation related to this transaction and hedge.

Note: If no entry is required for a transaction$/$event$,$ select $"$No Journal Entry Required" in the first account field.

View journal entry worksheet

$\backslash$table$[[,$No$,$Date,General Journal,Debit,Credit$],[$i$,1,03/01,$No Journal Entry Required,,$],[\backslash$gamma $,2,05/31,$Other Comprehensive Income $($OCI$),3,705,],[,,$Forward Contract,,$3,705],[$;$,3,05/31,$Cost of Goods Sold,$6,175,],[,,$Other Comprehensive Income $($OCI$),,6,175],[$i$,4,05/31,$Foreign Currency $($NOK$),,],[,,$Forward Contract,,$],[,,$Cash,,$],[$i$,5,05/31,$Inventory,,$],[,,$Foreign Currency $($NOK$),,],[$i$,6,05/31,$Cost of Goods Sold,$173,786,],[,,$Inventory,,$176,335],[\backslash$gamma $,7,05/31,$Accumulated Other Comprehensive Income $($AOCI$),,],[,,$Cost of Goods Sold,,$]]$