Question
Constellation Brands, a U.S. company, purchases merchandise from a German supplier on a regular basis. On April 1, 2016, Constellation purchased 10,500 for delivery on
Constellation Brands, a U.S. company, purchases merchandise from a German supplier on a regular basis. On April 1, 2016, Constellation purchased 10,500 for delivery on June 30, 2016, in anticipation of an expected purchase of merchandise for 10,500 at the end of June. The forward contract was a qualified hedge of a forecasted transaction. Constellation took delivery of the merchandise, settled the forward contract, and paid the German supplier 10,500 on June 30, 2016. The merchandise was subsequently sold in the U.S. on July 12, 2016, for $14,250 in cash. Relevant exchange rates ($/) are as follows:
Spot rate | Forward rate for delivery June 30, 2016 | |
---|---|---|
April 1, 2016 | $ 1.32 | $1.30 |
June 30, 2016 | 1.36 | -- |
Prepare the journal entries made by Constellation Brands on June 30 and July 12 concerning the above events. Assume Constellation Brands is a calendar-year company, and records cost of goods sold at the time of sale.
General Journal | |||
---|---|---|---|
Date | Description | Debit | Credit |
06/30/16 | AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
To record increase in fair value of forward contract. | |||
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
Investment in forward contract | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
To record settlement of forward contract. | |||
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
To record delivery of merchandise and payment to supplier. | |||
07/12/16 | AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
To record merchandise sale. | |||
Other comprehensive income | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashInventorySales revenueCost of goods sold | Answer | Answer | |
To record cost of sale. |
PreviousSave AnswersNext
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To solve this we need to prepare the journal entries for Constellation Brands for June 30 and July 12 2016 The entries need to reflect the hedging of ...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