Question
Cherry Company, on September 5, 2015, contracts to sell wheat for 2,000,000 to For Company The wheat will be delivered March 1, 2016, and payment
Cherry Company, on September 5, 2015, contracts to sell wheat for 2,000,000 to For Company The wheat will be delivered March 1, 2016, and payment is due April 1, 2016. The year-end is December 31.
Cherry Co. hedges the commitment right away and designates this as a cash flow hedge.
Cherry Co. will account for the hedge using the gross method. The settlement date is Apr. 1.
| Rates: | spot rate | forward rate to Feb. 15, 2016 | ||
| sign contract | sept. 5 |
| 1.600 | 1.610 |
| year-end | Dec. 31 |
| 1.615 | 1.622 |
| delivery date | March 1 |
| 1.630 | 1.640 |
| settlement date | Apr. 1 |
| 1.645 |
Required:
Required:
Prepare all journal entries related to the hedge and the underlying purchase or sale. Use the gross method (record the hedge using a JE; not a memorandum entry) Prepare journal entries in standard form.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Accounting Principles
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Steinbart Romney B.
9th International Edition
0470409460, 978-0470409466
