Question
On December 1, 20X1, Micro World Incorporation entered into a 120-day forward contract to sell 100,000 Australian dollars (A$). Micro Worlds fiscal year ends on
On December 1, 20X1, Micro World Incorporation entered into a 120-day forward contract to sell 100,000 Australian dollars (A$). Micro Worlds fiscal year ends on December 31. The direct exchange rates follow:
Date | Spot Rate | Forward Rate for March 31, 20X2 |
---|---|---|
December 1, 20X1 | $ 0.600 | $ 0.609 |
December 31, 20X1 | 0.610 | 0.612 |
January 30, 20X2 | 0.608 | 0.605 |
March 31, 20X2 | 0.602 |
Required:
Prepare all journal entries for Micro World Incorporated for the following independent situations:
1 The forward contract was to manage the foreign currency risks from the sale 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.
2 The forward contract was to hedge an anticipated sale of furniture on January 30. The sale took place on January 30 with payment due on March 31, 20X2. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness.
3 The forward contract was for speculative purposes only.
(1 and 2 needs 10 entries and 3 needs 5 entries) (if no entry is required say no entry)
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