A US Company Plans to Buy ¥100,000 in Merchandise from an an Chinese

Essay

A U.S. company plans to buy ¥100,000 in merchandise from an Chinese supplier at the beginning of March 2020, payment to be made in yuan (¥). On November 1, 2019, it enters a forward contract, locking in the purchase price of ¥100,000 at $0.158/¥ for delivery on March 1, 2020. The forward contract qualifies as a cash flow hedge of a forecasted transaction. On March 1, 2020, the company takes delivery of ¥100,000 in merchandise from the Chinese supplier and pays for it by exchanging U.S. dollars for yuan using the forward contract. The company sells the merchandise later in 2020. Its accounting year ends December 31. Exchange rates ($/¥) are as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 1, 2020 Delivery }\end{array} \\\hline \text { November 1, 2019 } & \$ 0.154 & \$ 0.158 \\\hline \text { December 31, 2019 } & 0.162 & 0.164 \\\hline \text { March 1, 2020 } & 0.168 & 0.168 \\\hline\end{array}$$ Required
Prepare the journal entries to record these events, including year-end adjusting entries and the cost of sales entry when the merchandise is sold.