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Cleveland Company is a US firm with a US dollar functional currency that manufactures copperrelated products. It forecasts that it will sell feet of copper tubing to one of its largest customers at a price of Although this sale has not been firmly committed, Cleveland expects that the sale will occur in six months on June Thus, Cleveland is exposed to changes in foreign currency exchange rates. To reduce this exposure, Cleveland enters into a sixmonth foreign currency exchange forward contract with a thirdparty dealer on January to deliver and receive US$ The foreign exchange contract has the following terms:
Contract amount:
Maturity date: June
Forward contract rate: US $
Yen : US$ Exchange rates:
Date Spot Rate Forward Rate for June
January : US $: US $
March : US $: US $
June : US $
Cleveland obtains the fair values of the forward exchange contract from the thirdparty dealer.
January March June
Swap fair value $ $ $
Required:
Calculate the net settlement on June
Prepare the journal entries for the period January to June to record the forward contract, necessary adjustments for changes in fair value, and settlement.
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