Question
On December 1. 20X1, Micro World Inc. entered into a 120-day forward contract to purchase 100,000 Australian dollars (AS). Micro World's fiscal year ends on
On December 1. 20X1, Micro World Inc. entered into a 120-day forward contract to purchase 100,000 Australian dollars (AS). Micro World's fiscal year ends on December 31. The direct exchange rates follow: Date December 1, 20X1 December 31, 20X1 January 30, 20X2 March 31, 20X2 Spot Rate $0.600 0.610 0.608 0.602 Forward Rate for March 31, 20X2 $0.609 0.612 0.605
Required Prepare all journal entries for Micro World Inc. for the following independent situations:
a. The forward contract was to manage the foreign currency risks from the purchase of furniture for A$100,000 on December 1, 20X1, with payment due on March 31, 20X2. The forward contract is not designated as a hedge.
b. The forward contract was to hedge a firm commitment agreement made on December 1, 20XI, to purchase furniture on January 30, with payment due on March 31, 20X2. The derivative is designated as a fair value hedge.
d. The forward contract was for speculative purposes only.
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