Question
Hedged Sale Commitment and Exposed Asset Position On June 25, 2020, GlobalAgra Inc., a U.S. company, received a purchase order from a Swiss customer for
Hedged Sale Commitment and Exposed Asset Position
On June 25, 2020, GlobalAgra Inc., a U.S. company, received a purchase order from a Swiss customer for delivery of merchandise on July 10, 2020, at a price of CHF10,000,000, payable in Swiss francs (CHF) on September 10, 2020. To hedge its exposure to exchange rate changes, on June 25, 2020, GlobalAgra entered a forward contract for delivery of CHF10,000,000 to the broker on September 10, 2020. The merchandise was delivered as scheduled. On September 10, 2020, GlobalAgra received payment from the customer, and delivered the Swiss francs to the broker to close the forward contract. GlobalAgras accounting year ends December 31. Exchange rates ($/ CHF) are as follows:
Spot rate | Forward rate for delivery September 10, 2020 | ||
---|---|---|---|
June 25, 2020 | $1.0506 | $1.0507 | |
July 10, 2020 | 1.0510 | 1.0511 | |
September 10, 2020 | 1.0512 | -- |
Required
Prepare the journal entries GlobalAgra made on July 10, 2020, and September 10, 2020, to record the above transactions.
Date | Description | Debit | Credit | |
---|---|---|---|---|
7/10/20 | ||||
To record change in fair value of the forward contract. | ||||
To record gain or loss on U.S. dollar value of the firm commitment. | ||||
To record delivery of goods to the customer. | ||||
To adjust sales revenue for the change in value of the firm commitment. | ||||
9/10/20 | ||||
To record gain or loss on accounts receivable. | ||||
To record change in fair value of the forward contract. | ||||
To record receipt of Swiss francs from the U.K. customer. | ||||
Cash | ||||
To record delivery of the currency to the dealer, and settlement of the forward contract. |
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