Essay
On October 1, 2013, 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, 2013, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2014) and receive $78,000 in U.S. dollars. The spot and forward rates for the LCU were as follows: ![On October 1, 2013, 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, 2013, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2014) 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 cash flow hedge; prepare journal entries for this sales transaction and forward contract. <sup>1</sup> [(.80 - .78) 100,000] × .9901 = 1,980 <sup>2</sup> [(.78 - .86) 100,000] - 1,980 = 6,020](https://d2lvgg3v3hfg70.cloudfront.net/TB2311/11ea8e0c_b123_da95_b636_dba095e4ec25_TB2311_00_TB2311_00.jpg)
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 cash flow hedge; prepare journal entries for this sales transaction and forward contract. ![On October 1, 2013, 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, 2013, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2014) 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 cash flow hedge; prepare journal entries for this sales transaction and forward contract. <sup>1</sup> [(.80 - .78) 100,000] × .9901 = 1,980 <sup>2</sup> [(.78 - .86) 100,000] - 1,980 = 6,020](https://d2lvgg3v3hfg70.cloudfront.net/TB2311/11ea8e0c_b123_da96_b636_17536aa2c56b_TB2311_00_TB2311_00.jpg)
1 [(.80 - .78) 100,000] × .9901 = 1,980
2 [(.78 - .86) 100,000] - 1,980 = 6,020
Correct Answer:
Verified
Correct Answer:
Verified
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