The company has an incremental borrowing rate of 12. it, Ask an Expert

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For 100,000 FC (Foreign Currency). On October 31, 2010, the merchandise is delivered and paid for and is fully consumed by December 31, 2010. Jones Corporation also entered into a forward contract on August 1, 2010 to purchase 100,000 FC in three months at the agreed-on forward rate. The forward contract is properly designated as a fair value hedge of a fair value currency firm commitment. The fair value of the firm commitment is measured through reference to changes in the forward rate. Relevant rates for the FC are as follows:

Date Spot Rate Forward Rate, Oct 31, 2010
August 1 $1.300 $1.310
September 31 $1.305 $1.325
October 31 $1.320

The company has an incremental borrowing rate of 12%. It must close its books and prepare third-quarter financial statements on September 30, 2010. Prepare journal entries for the forward contract and firm commitment.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M944167

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