Question
On November 1, 2016, a U.S. company purchased inventory from a foreign supplier for 100,000 FC, with payment to be made on January 31, 2017,
On November 1, 2016, a U.S. company purchased inventory from a foreign supplier 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 | Fwd. Rate |
| 11/1/16 | $0.15 | $0.13 |
| 12/31/16 | $0.16 | $0.14 |
| 1/31/17 | $0.165 | $0.165 |
Discount rate = 12%
Required:
Calculate the proper amounts and make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 2016, and January 31, 2017.
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An Audit Of The Case Study Method
Authors: Michael Masoner
1st Edition
027592761X, 978-0275927615
