Question
BKH Company purchased parts from a foreign supplier on Nov. 1, Year1, with a payment by BKH of 7,000 foreign currency units (FCU) to be
BKH Company purchased parts from a foreign supplier on Nov. 1, Year1, with a payment by BKH of 7,000 foreign currency units (FCU) to be made on Feb 1, Year 2. BKH enters into a forward contract, designated as a fair value hedge, to purchase 7,000 FCU on Feb 1, Year 2. Exchange rates:
Date/Spot rate/ Forward rate to Feb 1, Yr 2
11/1/Yr 1/ Spot rate =$2.25/ Forward rate=$2.40
12/31/Yr1/ Spot rate =$2.16/ Forward rate =$2.45
2/1/Yr 2/ Spot rate = $2.20
BKH's incremental borrowing rate is 10%. The present value factor for one month at 10% is 0.96 and for two months is 0.92 (I made these up....use what you need.)
Prepare the journal entries for Year 1 and Year 2. You will have 7 entries.
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