United inc. a u.s. corporation entered into a contract on, Ask an Expert

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United, Inc., a U.S. corporation, entered into a contract on November 1, 2007 to sell two machines to International Company, for 80,000 foreign currency units (FCU). The machines were to be delivered and the amount collected on March 1, 2008.

In order to hedge its commitment, United entered into a forward contract for 80,000 FCU delivery on March 1, 2008. The forward contract met all conditions for hedging an identifiable foreign currency commitment.

Selected exchange rates for FCU at various dates were as follows:

November 1, 2007 - Spot rate $1.4576

Forward rate for delivery on March 1, 2008 1.4480

December 31, 2007 - Spot rate 1.4560

Forward rate for delivery on March 1, 2008 1.4650

March 1, 2008 - Spot rate 1.4472

Required:

Prepare all journal entries relative to the above on the books of United, Inc. on the following dates:

1. November 1, 2007.

2. Year-end adjustments on December 31, 2007.

3. March 1, 2008. (Include all adjustments related to the forward contract)

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9431314

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