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Forward exchange contract designated as a cash flow hedge of a foreign - currency - denominated forecasted sale of inventory, strengthening ) On October 1
Forward exchange contract designated as a cash flow hedge of a foreigncurrencydenominated forecasted sale of inventory, strengthening On October our USbased company received a cancelable purchase order from a Luxembourgbased retailer. The purchase order states that our company will sell to the Luxembourgish company, on February units of an inventory item with a sales price of each. The purchase order also specifies that the Luxembourgish company will make payment in Euros on that same date. Our company does recurring business with the Luxembourgish company; however, the cancelable purchase order includes no monetary penalties for nonperformance. Also, on October our company entered into a contract with a foreign currency exchange broker to sell for settlement on February to mitigate the risk of exchange rate fluctuation from this forecasted sale. We will receive $ per which is the forward rate on October for settlement on February Our company's functional currency is the US dollar and our forward exchange contract qualifies as a cash flow hedge. The relevant exchange rates and related balances for the period from October to February are as follows: Ignore discounting in the computation of fair values. a Prepare the journal entries to record the sale and all adjustments required for the forecasted sale and forward contract at October December and February Note: If no entry is required, select No entry" as your answers under Description and leave the debit and credit answers blank zero Hedged Transaction b Reconcile to the forward rate at the forward contract's inception the net cash received for both the sale of goods and the settlement of the forwardcontract derivative. Net cash received for sale of goods and settlement of the forward contract derivative is: $Answer c What amount of sales was recognized in the quarter ending December Note: Do not use a negative sign with any of your answers below. $Answer What amount of sales was recognized in the quarter ending March $Answer What is the total amount of sales recognized across the quarters ending December and March $ Answer
Forward exchange contract designated as a cash flow hedge of a foreigncurrencydenominated
forecasted sale of inventory, strengthening
On October our USbased company received a cancelable purchase order from a
Luxembourgbased retailer. The purchase order states that our company will sell to the Luxembourgish
company, on February units of an inventory item with a sales price of each. The
purchase order also specifies that the Luxembourgish company will make payment in Euros on that
same date. Our company does recurring business with the Luxembourgish company; however, the
cancelable purchase order includes no monetary penalties for nonperformance. Also, on October
our company entered into a contract with a foreign currency exchange broker to sell for
settlement on February to mitigate the risk of exchange rate fluctuation from this forecasted
sale. We will receive $ per which is the forward rate on October for settlement on
February Our company's functional currency is the US dollar and our forward exchange
contract qualifies as a cash flow hedge. The relevant exchange rates and related balances for the period
from October to February are as follows:
Ignore discounting in the computation of fair values.
a Prepare the journal entries to record the sale and all adjustments required for the forecasted sale and
forward contract at October December and February
Note: If no entry is required, select No entry" as your answers under Description and leave the debit
and credit answers blank zero
Hedged Transaction
b Reconcile to the forward rate at the forward contract's inception the net cash received for both the
sale of goods and the settlement of the forwardcontract derivative.
Net cash received for sale of goods and settlement of the forward contract derivative is:
$Answer
c What amount of sales was recognized in the quarter ending December
Note: Do not use a negative sign with any of your answers below.
$Answer
What amount of sales was recognized in the quarter ending March
$Answer
What is the total amount of sales recognized across the quarters ending December and March
$ Answer
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