Question
Rogers Inc., a US company, decided to purchased machinery on November 1, 2010, from Rodriguez Corp, a Mexican company, for 500,000 pesos. The invoice was
Rogers Inc., a US company, decided to purchased machinery on November 1, 2010, from Rodriguez Corp, a Mexican company, for 500,000 pesos. The invoice was payable in pesos on January 30, 201. To hedge against rapid changes in the peso, Rogers entered into a forward contract on November 1, 2010, with XYZ Trader & Company, a US brokerage and investment firm. The contract specified that Rogers would buy 500,000 pesos from XYZ Trader at $0.075 per peso for settlement on January 30, 2011.
Assume that all three companies are subject to the same accounting
standards and have December 31st year-ends. The spot rates for pesos on November 1, December 31, and January 30, are $0.075, $0.065,
and $0.095, respectively. The 30-day forward rate for pesos on
December 31, 2010 is $0.045. The forward contract is TO BE SETTLED NET. This is a fair value hedge.
Do the required journal entries and show working. If there is no need for an entry, state 'no entry'.
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