A US Company Forecasts That It Will Receive £100,000 in Sales

Essay

A U.S. company forecasts that it will receive £100,000 in sales revenue in 6 months. To lock in the dollar value of these revenues, on September 10, 2020, it enters a forward sale contract to deliver £100,000 to a broker at a rate of $1.325/£ on March 10, 2021. On March 10, 2021, the U.S. company receives £100,000 from customers, records the revenue as earned, and sells the currency using the forward contract. The U.S. company's accounting year ends December 31, and the forward qualifies as a cash flow hedge. Relevant exchange rates are:
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 10, 2021 Delivery }\end{array} \\\hline \text { September 10, 2020 } & \$ 1.325 & \$ 1.324 \\\hline \text { December 31, 2020 } & 1.327 & 1.326 \\\hline \text { March 10, 2021 } & 1.321 & 1.321 \\\hline\end{array}$$ Required
Prepare the journal entries made by the U.S. company in 2019 and 2020, including any December 31, 2020 adjustments.