On January 1, 2016, a Domestic Firm Agrees to Sell

Essay

On January 1, 2016, a domestic firm agrees to sell goods to a foreign customer, with delivery to be made and payment to be received on April 1, 2016.The goods are valued at 50,000 FC.On January 1, 2016, the domestic firm purchased a 90-day forward contract to sell 50,000 FC.Exchange rates on selected dates are as follows:
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Discount rate = 10%
$$\begin{array} { l c c } \text { Date } & \text { Spot Rate } & \text { Fwd Rate } \\\hline 1 / 1 / 16 & 1 \mathrm { FC } = \$ 1.00 & 1 \mathrm { FC } = \$ 0.99 \\2 / 28 / 16 \text { (year-end) } & 1 \mathrm { FC } = \$ 0.98 & 1 \mathrm { FC } = \$ 0.97 \\4 / 1 / 16 & 1 \mathrm { FC } = \$ 0.96 & 1 \mathrm { FC } = \$ 0.96\end{array}$$ ?
Required:
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Prepare the journal entries needed to properly reflect the sales transaction and the forward exchange contract.The forward contract meets the conditions necessary to be classified as a hedge on an identifiable foreign currency commitment.Include the table to calculate the split between exchange gains or losses on the contract due to changes in spot rates and the changes in time value.