A US Company Sells Merchandise to Customers in Germany and Receives

Essay

A U.S. company sells merchandise to customers in Germany and receives payment in euros. The company's accounting year ends June 30. On March 1, the company receives an order from a German customer for €100,000 in merchandise, payable in euros on delivery, delivery to take place August 15. On the same day the company enters into a forward contract for delivery of €100,000 on August 15. The forward qualifies as a fair value hedge of a firm commitment. On August 15, the company delivers the merchandise, receives payment of €100,000 from the customer, closes the forward contract and receives U.S. dollars. Information on $/€ exchange rates is as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { August 15 Delivery }\end{array} \\\hline \text { March 1 } & \$ 1.235 & \$ 1.233 \\\hline \text { June 30 } & 1.232 & 1.231 \\\hline \text { August 15 } & 1.228 & 1.228 \\\hline\end{array}$$ Required
Make the journal entries to record the above events, including appropriate year-end adjusting entries.