Problem -our firm purchased equipment for 200000 zimbabwean, Ask an Expert

Accounting

Problem -

Our firm purchased equipment for 200,000 Zimbabwean dollars (ZD$) on December 1, 2013. Our year end is December 31, and the payable is due on February 28, 2014. On December 1, 2013, we entered into a forward exchange contract with the bank to provide us with 200,000 ADs on February 28, 2014. This is classified as a fair value hedge.

The following rates were in effect:

Forward Rates:

December 1, 2013; 90 day forward rate - ZD$1 = CDN$ .62

December 31, 2013; 60 day forward rate - ZD$1 = CDN$ .60

Spot rates:

December 1, 2013 - ZD$1 = CDN$ .64

December 31, 2013 - ZD$1 = CDN$ .61

February 28, 2014 - ZD$1 = CDN$ .59

Required: Provide all of the necessary journal entries to record the both the account payable and the hedge.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M92281721

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