On April 1 of the current year, Econ Ltd. ordered maps from a foreign supplier for 500,000 units of foreign currency (FC). On April 2, Econ entered a forward contract as a cash flow hedge to acquire 500,000 FC on July 31 for $0.31. On July 31, the maps arrived and Econ paid the supplier in full and settled the forward contract. Econ has an April 30 year-end.
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Spot Rate
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Forward Rate
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April 1 and 2
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FC 1 = $0.280
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FC 1 = $0.310
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April 30
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FC 1 = $0.270
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FC 1 = $0.305
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July 31
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FC 1 = $0.320
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FC 1 = $0.320
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Required:
a) Prepare dated journal entries to record the transactions shown above.
b) Assume that Econ did not enter into a forward contract. Prepare dated journal entries to record the transactions above.
c) Assume that Econ had entered into a forward contract that was designated a fair value hedge. Prepare dated journal entries to record the transactions above.