Question
Hedging Exposed Liability Position with Adjusting Entries On December 1, 2017, Sizzler Foods, a U.S. company, purchased merchandise from a Hong Kong supplier at a
Hedging Exposed Liability Position with Adjusting Entries
On December 1, 2017, Sizzler Foods, a U.S. company, purchased merchandise from a Hong Kong supplier at a price of HK$18,000,000, payable in three months in Hong Kong dollars. To hedge its exposed liability position, Sizzler entered a forward contract for purchase of HK$18,000,000 on March 1, 2018. On March 1, Sizzler closed the forward contract and used the Hong Kong dollars to pay its supplier. Sizzler's accounting year ends January 31.
Exchange rates ($/HK$) are as follows:
Spot rate | Forward rate for delivery March 1, 2018 | |
---|---|---|
December 1, 2017 | $0.1291 | $0.1295 |
January 31, 2018 | 0.1301 | 0.1306 |
March 1, 2018 | 0.1305 | -- |
Prepare the journal entries Sizzler Foods made on December 1, 2017 and March 1, 2018 to record the above transactions, as well as its end-of-year adjusting entries on January 31, 2018.
Account titles from drop down:
Investment in forward contract
Inventory
Accounts Payable
Exchange loss
Exchange gain
Foreign currency
Please show all work. Thank you!!!!
General Journal Description Debit Credit Date 12/01/17 To record goods purchased. 01/31/18 To adjust accounts payable. To restate forward contract to current fair value. 03/01/18 To adjust accounts payable. To restate forward contract to current fair value. Cash To record settlement of the forward contract. To record payment to the supplier. General Journal Description Debit Credit Date 12/01/17 To record goods purchased. 01/31/18 To adjust accounts payable. To restate forward contract to current fair value. 03/01/18 To adjust accounts payable. To restate forward contract to current fair value. Cash To record settlement of the forward contract. To record payment to the supplierStep by Step Solution
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