Question
On december 1, 2008, a domestic firm agrees to sell goods (cost, $30,000) for 50,000 FCs to a foreign customer, with delivery and payment to
On december 1, 2008, a domestic firm agrees to sell goods (cost, $30,000) for 50,000 FCs to a foreign customer, with delivery and payment to be made on March 1, 2009. December 1, 2008, thr domestic firm purchased a 90-day forward contract to sell 50,000 FCs. Exchange rates on selected dates are as follows: Date Spot Rate Fwd Rate 12/1/08 1 FC = $1.00 1 FC = $0.99 12/31/08 1 FC = $0.98 1 FC = $0.97 3/1/09 1 FC = $0.96 1 FC = $0.96
Discount rate = 10%
Required: a) Prepare the journal entries needed to properly reflect the sales transactions and the forward exchange contract. The forward contract meets the conditions necessary to be classified as a hedge on an identifiable foreign currency commitment. b) Show how the transactions will be reflected in the 12/31/08 balance sheet.
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