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Problem: 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.

 

Spot Rate

Forward Rate

April 1 and 2

FC 1 = $0.280

FC 1 = $0.310

April 30

FC 1 = $0.270

FC 1 = $0.305

July 31

FC 1 = $0.320

FC 1 = $0.320

Required:

1) Prepare dated journal entries to record the transactions shown above.

2) Assume that Econ did not enter into a forward contract.  Prepare dated journal entries to record the transactions above.

3) 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.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M982

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