Answered step by step
Verified Expert Solution
Question
1 Approved Answer
On November 1, 2020 ABC Company (ABC), the U.S. based company forecasts the purchase of goods from a foreign supplier for 100,000 yuan. ABC expects
On November 1, 2020 ABC Company (ABC), the U.S. based company forecasts the purchase of goods from a foreign supplier for 100,000 yuan. ABC expects to receive the goods on April 20, 2021, and make immediate payment. On November 1, 2020, ABC enters into a six-month forward contract to buy 100,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar- Yuan exchange rates apply: Date Spot Rate Forward Rate to April 30, 2021 November 1, 2020 $0.21 $0.195 December 31, 2020 $0.19 $0.170 April 30, 2021 $0.18 N/A As expected, ABC receives the goods from the supplier on April 30, 2021 and pays 100,000 yuan immediately. ABC sells the imported goods in the local market in May 2021. Required: Prepare all journal entries and memoranda related to the foreign currency forward contract, purchase, and sale from November 2020 to May 2021. On November 1, 2020 ABC Company (ABC), the U.S. based company forecasts the purchase of goods from a foreign supplier for 100,000 yuan. ABC expects to receive the goods on April 20, 2021, and make immediate payment. On November 1, 2020, ABC enters into a six-month forward contract to buy 100,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar- Yuan exchange rates apply: Date Spot Rate Forward Rate to April 30, 2021 November 1, 2020 $0.21 $0.195 December 31, 2020 $0.19 $0.170 April 30, 2021 $0.18 N/A As expected, ABC receives the goods from the supplier on April 30, 2021 and pays 100,000 yuan immediately. ABC sells the imported goods in the local market in May 2021. Required: Prepare all journal entries and memoranda related to the foreign currency forward contract, purchase, and sale from November 2020 to May 2021
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started