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11-3 P11-23A Comprehensive Problem: Four Uses of Forward Exchange Contracts without and with Time Value of Money Considerations On December 1, 20x1, Micro World, Inc.,
11-3 P11-23A Comprehensive Problem: Four Uses of Forward Exchange Contracts without and with Time Value of Money Considerations On December 1, 20x1, Micro World, Inc., entered into a 120-day forward contract to purchase 100,000 Australian dollars (AS). Micro World's fiscal year ends on December 31. The direct exchange rates follow: Date December 1, 20X1 December 31, 20X1 January 30, 20X2 March 31, 20X2 Spot Rate 50.600 0.610 0.608 0.602 Forward Rate for March 31, 20X2 50.609 0.612 0.605 Required Prepare all journal entries for Micro World, Inc., for the following independent situations a. The forward contract was to manage the foreign currency risks from the purchase of furniture for AS100,000 on December 1, 20X1, with payment due on March 31, 20X2. The forward con- tract is not designated as a hedge. b. The forward contract was to hedge a firm commitment agreement made on December 1, 20x1, to purchase furniture on January 30, with payment due on March 31, 20X2. The derivative is designated as a fair value hedge. The forward contract was for speculative purposes only
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