P11-27 Comprehensive Problem: Uses of Forward Exchange Contracts without Time Value of Money Considerations LO 11-3 On December 1, 20X1, Micro World Inc. entered into a 120-day forward contract to sell 100,000 Australian dollars (A\$). Micro World's fiscal year ends on December 31. The direct exchange rates follow: Required: Prepare all journal entries for Micro World Inc. 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 1,201, with payment due on March 31, 202. The forward contract is not designated as a hedge. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1. The forward contract was to manage the foreign currency risks from the sale of furniture for A$100,000 on December 1,201, with payment due on March 31,202. The forward contract is not designated as a hedge. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1. The forward contract was to manage the foreign currency risks from the sale of furniture for A$100,000 on December 1,201, with payment due on March 31,202. The forward contract is not designated as a hedge. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) \begin{tabular}{|l|l|l|l|} \hline 5 & Record the revaluation of the foreign currency payable to \\ the current U.S. dollar equivalent. \end{tabular} 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 31,202. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1 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. 2 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. 3 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. 4 Record the sale of the furniture and its value at the spot rate Note : = journal entry has been entered 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, 202. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) \begin{tabular}{l} 5 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. \\ \hline 6 Record the revaluation of the foreign currency receivable \\ using the spot rate and recognizing the change into \\ current earnings as specified by ASC 830 . \\ 7 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. \\ 8 Record the receipt of U.S. dollars from an exchange \\ broker. \end{tabular} Note : = journal entry has been entered 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 31,202. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 8 Record the receipt of U.S. dollars from an exchange broker. 9 Record the payment of A\$100,000 to the broker in accordance with the forward contract signed on December 1. 10 Record the receipt of A$100,000 from foreign customer. 3. The forward contract was for speculative purposes only. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1 Record a 120-day forward contract signed for speculation. 2 Record the revaluation of the foreign currency payable to the equivalent U.S. dollar value. 3 Record the revaluation of the foreign currency payable. 4 Record the receipt of U.S. dollars from an exchange broker as required by the forward contract. 5 Record the payment of A$100,000 to the exchange broker in accordance with the forward contract. Note : = journal entry has been entered P11-27 Comprehensive Problem: Uses of Forward Exchange Contracts without Time Value of Money Considerations LO 11-3 On December 1, 20X1, Micro World Inc. entered into a 120-day forward contract to sell 100,000 Australian dollars (A\$). Micro World's fiscal year ends on December 31. The direct exchange rates follow: Required: Prepare all journal entries for Micro World Inc. 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 1,201, with payment due on March 31, 202. The forward contract is not designated as a hedge. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1. The forward contract was to manage the foreign currency risks from the sale of furniture for A$100,000 on December 1,201, with payment due on March 31,202. The forward contract is not designated as a hedge. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1. The forward contract was to manage the foreign currency risks from the sale of furniture for A$100,000 on December 1,201, with payment due on March 31,202. The forward contract is not designated as a hedge. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) \begin{tabular}{|l|l|l|l|} \hline 5 & Record the revaluation of the foreign currency payable to \\ the current U.S. dollar equivalent. \end{tabular} 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 31,202. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1 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. 2 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. 3 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. 4 Record the sale of the furniture and its value at the spot rate Note : = journal entry has been entered 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, 202. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) \begin{tabular}{l} 5 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. \\ \hline 6 Record the revaluation of the foreign currency receivable \\ using the spot rate and recognizing the change into \\ current earnings as specified by ASC 830 . \\ 7 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. \\ 8 Record the receipt of U.S. dollars from an exchange \\ broker. \end{tabular} Note : = journal entry has been entered 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 31,202. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 8 Record the receipt of U.S. dollars from an exchange broker. 9 Record the payment of A\$100,000 to the broker in accordance with the forward contract signed on December 1. 10 Record the receipt of A$100,000 from foreign customer. 3. The forward contract was for speculative purposes only. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1 Record a 120-day forward contract signed for speculation. 2 Record the revaluation of the foreign currency payable to the equivalent U.S. dollar value. 3 Record the revaluation of the foreign currency payable. 4 Record the receipt of U.S. dollars from an exchange broker as required by the forward contract. 5 Record the payment of A$100,000 to the exchange broker in accordance with the forward contract. Note : = journal entry has been entered