Essay
On October 1, 2011, Jarvis Co. sold inventory to a customer in a foreign country, denominated in 100,000 local currency units (LCU). Collection is expected in four months. On October 1, 2011, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2012) and receive $78,000 in U.S. dollars. The spot and forward rates for the LCU were as follows:
The company's borrowing rate is 12%. The present value factor for one month is .9901.
Any discount or premium on the contract is amortized using the straight-line method.
Assuming this is a fair value hedge; prepare journal entries for this sales transaction and forward contract.
Correct Answer:
Verified
Correct Answer:
Verified
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