On november 1, 2016 a us company purchased inventory from a foreign investor for 100,000 FC, with payment to be made on January 31, 2017, in FC. To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on November 1 to purchase 100,000 FC on January 31, 2017. The U.S firm has a december 31 year end for accounting purposes. The following exchange rates may apply.

Date: Spot Rate Forward Rate

11/1/16 .15 .13

12/31/16 .16 .14

1/31/17 .165 .165

Discount Rate = 12%

Journal Entry #1 (Move the Amount):

Journal Entry #2 (Straight line Amortization of the premium):

Journal Entry #3 (Make Payment):

Journal Entry #7 (Purchase Foreign Currency):