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:
DateSpot RateForward Rate for March 31, 20X2December 1, 20X1$ 0.600$ 0.609December 31, 20X10.6100.612January 30, 20X20.6080.605March 31, 20X20.602Prepare all journal entries for Micro World Incorporated for the following:
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.
- Record the 120-day forward contract signed as a cash flow hedge of the forecasted foreign currency transaction of the sale of furniture on January 30 for A$100,000.
- Record the revaluation of the foreign currency payable to fair value and record OCI for the effective portion of the change in fair value of the derivative designated as a cash flow hedge.
- Record the revaluation of the foreign currency payable to the current U.S. dollar equivalent and record OCI for the effective portion of the change in fair value of the derivative designated as a cash flow hedge.
- Record the sale of the furniture and its value at the spot rate.
- Record the revaluation of the foreign currency payable and record into OCI the effective portion of change in fair value of the derivative designated as a cash flow hedge.
- Record the revaluation of the foreign currency receivable using the spot rate and recognizing the change into current earnings as specified by ASC 830.
- Record the reclassification amount from OCI sufficient to completely offset the foreign currency transaction loss on the foreign currency receivable (A$) that was hedged with a derivative designated as a cash flow hedge.
- Record the receipt of U.S. dollars from an exchange broker.
- Record the payment of A$100,000 to the broker in accordance with the forward contract signed on December 1.
- Record the receipt of A$100,000 from foreign customer.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
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