From Advanced Accounting - Fifth Edition Debra C. and Paul K.

PROBLEM 124 Journal Entries-Exporting Transactions with Forward Contract Hedges L06 Centennial Exchange of St. Louis, Missouri, imports and exports grains. The company has a September 30 fiscal year-end. The periodic inventory system and the weighted-average cost flow method are used by the company to account for inventory cost. The company negotiated the following transactions during 2008 (assume forward contracts exist for the krone and forint). Sept. Sept. Sold 1,000.000 bushels of wheat to a Norwegian company for 16,500,000 krone. The ac- 1 count is to be settled on October 30 1 The management of Centennial was concerned that the krone would decline in value. They therefore entered into a forward contract to sell 16,500,000 Krone on October 30 for $.1442 per krone. 5 Sold 1,000,000 bushels of wheat to a Tokyo company for $5,300,000. The account is to Sept. be settled on November5 Sept. 15 Purchased grain from an exporting company that operates in Hungary. The contract Sept. 15 Entered into a forward contract to buy 20,000,000 forint on October 15 for $.006490 per Sept. 18 Sold 500 tons of soybean meal to Able & Born, Lud., a Toronto company, for 48,000 Oct. 15 Completed the forward contract to buy 20,000,000 forint and then submitted payment provides for the payment of 20,000,000 forint on October 15 Forint Canadian dollars. The account is to be settled on December 17. to pay for the grain purchased on September 15 Oct. 30 Received 16,500,000 Krones from the Norwegian customer and settled forward contract Nov. 5 Received payment in full for the wheat sold on September 5 to the Tokyo company Dec. 17 Received payment from Able & Born, Ltd. for the September 18 sale. Direct exchange quotations for specific dates are presented below Norway-Krone Japan-Yen Hungary-Forint Canada Dollar September September 5 September 15 September 18 September 30 October 15 October 30 November 5 December 17 8248 8246 8245 8243 8241 8241 8244 8250 006428 006430 006431 006433 006435 006370 006439 .006438 .1458 .1456 1456 1455 .1458 1457 .1456 .1453 00740 00741 00737 00736 00734 00732 00730 00731 On September 30, the forward rate for krone (with an October 30 settlement) was $.1450 and the forward rate for forints (with an October 15 settlement) was $.00640. Required: Prepare journal entries, including year-end adjustments, to record the above transactions