Accounting for Forward ContractsHedging and Speculation Futura Corporation, a calendar-year corporation, is an active trader in foreign exchange, to hedge its international activities and for outright speculation. In particular, it is active in the forward market for krone (kr), the currency of Denmark. On November 1, 2019, Futura entered into the following forward contracts. The contracts were settled on January 29, 2020. 1. Sold kr2,000,000 forward to hedge a forthcoming kr2,000,000 sale to a Danish firm; the sale price and January 29, 2020 delivery date have been negotiated and the customer will pay upon delivery. 2. Purchased kr3,000,000 forward to hedge a forecasted purchase from a Danish supplier. Delivery and payment on the forecasted purchase takes place on January 29, 2020. 3. Sold kr1,000,000 forward in anticipation of a fall in the spot rate. Relevant exchange rates ($/kr) are as follows: November 1, 2019 December 31, 2019 January 29, 2020 Spot rate $0.162 $0.172 $0.192 Thirty-day forward rate 0.145 0.165 0.185 Sixty-day forward rate 0.125 0.145 0.190 Ninety-day forward rate 0.105 0.132 0.195 (a) Prepare the journal entries made by Futura on December 31, 2019, and January 29, 2020, regarding the above transactions. General Journal Description Debit Date Credit Dec. 31 To record change in value of forward sale contract #1. To record change in value of firm commitment related to contract #1. To record change in value of forward purchase contract #2. To record gain or loss on speculative contract #3. Jan. 29 To record change in value of forward sale contract #1 since December 31. To record change in value of firm commitment related to contract #1. To record sale to Danish customer. To adjust sales revenue for the accumulated balance in the firm commitment account. Investment in forward contract To adjust sales revenue for the accumulated balance in the firm commitment account. Investment in forward contract To record the settlement of forward sale contract #1. To record change in value of forward purchase contract #2. Cash To record the settlement of forward purchase contract #2. To record purchase #2 at the current spot rate. To record gain or loss on forward sale contract #3 To record purchase of krone in the spot market, in anticipation of settlement of forward sale contract #3. Investment in forward contract To record settlement of forward sale contract #3. (b) Indicate how the above transactions would be disclosed on Futura's December 31, 2019, balance sheet and 2019 income statement. December 31, 2019 Balance Sheet: Investment in forward contracts has a net balance of: $ Firm commitment has a net balance of: $ Other comprehensive income is by: $ 2019 Income Statement: Net exchange on speculative activity is: $ Check Accounting for Forward ContractsHedging and Speculation Futura Corporation, a calendar-year corporation, is an active trader in foreign exchange, to hedge its international activities and for outright speculation. In particular, it is active in the forward market for krone (kr), the currency of Denmark. On November 1, 2019, Futura entered into the following forward contracts. The contracts were settled on January 29, 2020. 1. Sold kr2,000,000 forward to hedge a forthcoming kr2,000,000 sale to a Danish firm; the sale price and January 29, 2020 delivery date have been negotiated and the customer will pay upon delivery. 2. Purchased kr3,000,000 forward to hedge a forecasted purchase from a Danish supplier. Delivery and payment on the forecasted purchase takes place on January 29, 2020. 3. Sold kr1,000,000 forward in anticipation of a fall in the spot rate. Relevant exchange rates ($/kr) are as follows: November 1, 2019 December 31, 2019 January 29, 2020 Spot rate $0.162 $0.172 $0.192 Thirty-day forward rate 0.145 0.165 0.185 Sixty-day forward rate 0.125 0.145 0.190 Ninety-day forward rate 0.105 0.132 0.195 (a) Prepare the journal entries made by Futura on December 31, 2019, and January 29, 2020, regarding the above transactions. General Journal Description Debit Date Credit Dec. 31 To record change in value of forward sale contract #1. To record change in value of firm commitment related to contract #1. To record change in value of forward purchase contract #2. To record gain or loss on speculative contract #3. Jan. 29 To record change in value of forward sale contract #1 since December 31. To record change in value of firm commitment related to contract #1. To record sale to Danish customer. To adjust sales revenue for the accumulated balance in the firm commitment account. Investment in forward contract To adjust sales revenue for the accumulated balance in the firm commitment account. Investment in forward contract To record the settlement of forward sale contract #1. To record change in value of forward purchase contract #2. Cash To record the settlement of forward purchase contract #2. To record purchase #2 at the current spot rate. To record gain or loss on forward sale contract #3 To record purchase of krone in the spot market, in anticipation of settlement of forward sale contract #3. Investment in forward contract To record settlement of forward sale contract #3. (b) Indicate how the above transactions would be disclosed on Futura's December 31, 2019, balance sheet and 2019 income statement. December 31, 2019 Balance Sheet: Investment in forward contracts has a net balance of: $ Firm commitment has a net balance of: $ Other comprehensive income is by: $ 2019 Income Statement: Net exchange on speculative activity is: $ Check
