Pumped Up Company purchased equipment from Switzerland for 140,000 francs on December 16, 20X7, with payment due on February 14, 20X8. On December 16, 20X7, Pumped Up also acquired a 60-day forward contract to purchase francs at a forward rate of SFr1 = $0.67. On December 31, 20X7, the forward rate for an exchange on February 14, 20X8, is SFr1 = $0.695. The spot rates were December 16, 2007 December 31, 20X7 February 14, 20X8 SFr 1 SFr 1 SFr 1 = $ = = 0.68 0.70 0.69 Part I: Assume that the forward contract is not designated as a hedge but is entered into to manage the company's foreign currency- exposed accounts payable. a. Prepare journal entries for Pumped Up to record the purchase of equipment, all entries associated with the forward contract; the adjusting entries on December 31, 20X7, and entries to record the revaluations and payment on February 14, 20X8. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet 2 3 4 5 6 7 8 9 Record the purchase of the equipment with a payable denominated in Swiss francs. Note: Enter debits before credits. General Journal Debit Credit Date Dec. 16, 20X7 Record entry Clear entry View general journal 2 Record the entry for the 60-day forward exchange contract signed. 3 Record the entry to revalue accounts payable to the current U.S. dollar equivalent. 4 Record the entry to revalue the foreign currency receivable. 5 Record the entry to revalue the foreign currency receivable to the current equivalent U.S. dollar value. 6 Record the entry to revalue the foreign currency accounts payable to the current U.S. dollar value. 7 Record the payment of U.S. dollars to an exchange broker for the forward contract. 8 Record the receipt of Swiss francs from the exchange broker. 9 Record the settlement of the foreign currency payable. b. What was the effect of the foreign currency transactions on the income statement, including both the accounts payable and the forward contract, for the year ended December 31, 20X7? Net income increased by c. What was the overall effect of these transactions on the income statement from December 16, 20X7, to February 14, 20X8? Net income increased by Part II: Now assume the forward contract is designated as a cash flow hedge of the variability of the future cash flows from the foreign currency account payable. The company uses the forward exchange rate to assess effectiveness. Required: Prepare journal entries for Pumped Up to record the purchase of equipment, all entries associated with the forward contract; the adjusting and reclassification entries on December 31, 20X7; and entries to record the revaluations and payment on February 14, 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 1 2 3 4 5 6 7 8 ..... 11 Record the entry to purchase the equipment with a payable denominated in Swiss francs. Note: Enter debits before credits. Date General Journal Debit Credit Dec. 16, 20X7 Record entry Clear entry View general journal 2 Record the entry for the 60-day forward exchange contract signed. 3 Record the entry to revalue accounts payable to the current U.S. dollar equivalent. 4 Record the revaluation of the foreign currency receivable with the effective portion of the change in fair value of the cash flow hedging derivative recorded in other comprehensive income. 5 Record an amount to reclassify the comprehensive income to fully offset the foreign currency transaction loss on the revaluation of the foreign currency denominated account payable. 6 Record the revaluation of the foreign currency receivable to the current equivalent U.S. dollar value and record the effective portion of the change into other comprehensive income in accordance with ASC 815. 7 Record the revaluation of the foreign currency accounts payable to current U.S. dollar value using the spot rate in accordance with ASC 830. 8 Record an amount to reclassify the comprehensive income to fully offset the foreign currency transaction loss on the revaluation of the foreign currency denominated account payable. 9 Record the payment of U.S. dollars to an exchange broker for the forward contract. 10 Record the receipt of Swiss francs from the exchange broker. 11 Record the settlement of the foreign currency payable