29 Jun $0.0078 12/31/X1 …………………..
Question
8. Wolters Corporation is a U.S. corporation that purchased 50,000 chocolate bars from a foreign manufacturer on March 1, 20X9 for 80,000 foreign currency units, to be paid on April 30, 20X9. On March 1, 20X9 Wolters also entered into a forward contract to purchase 80,000 foreign currency units on April 30, 20X9. Wolters has a December 31 year end.
Exchange rates are as follows:
Date _
Spot Rate
Forward Rate
3/1/X9……………………………..
$0.69
$0.65
3/31/X9…………………………….
$0.61
$0.65
4/30/X9…………………………….
$0.66
$0.66
10-15
Chapter 10
Required:
Prepare the journal entries to record the transactions through April 30, 20X9. March 31 is NOT a fiscal period end. Ignore the split between spot gain/loss and time value.
9. Describe the disclosures required by the FASB of firms using derivatives as foreign currency hedges.
DIF: M OBJ: 5
10-16
Chapter 10
10. Rex Corporation, a U.S. firm with a calendar accounting year, agreed to buy a specially made truck from a Japanese firm for delivery on January 31, 20X2 with payment due on 2/28/X2. On the same date the agreement was signed, November 1, 20X1, a forward contract due on February 28, 20X2, was also signed to purchase 1,000,000 yen, the contract price of the truck. Exchange rates were as follows:
Date
Spot Rate
Forward Rate
11/1/X1 …………………………..
$0.0076
$0.0078
12/31/X1 …………………………..
$0.0081
$0.0080
1/31/X2 …………………………..
$0.0084
$0.0083
2/28/X2 …………………………..
$0.0085
$0.0085
Discount rate = 8%
Required:
Prepare the journal entries needed to properly reflect the purchase and forward contract through the end of the fiscal year.
11. On January 1, 20X1, a domestic firm agrees to sell goods to a foreign customer, with delivery to be made on March 1, 20X1. The goods, valued at 50,000 FCs, are to be paid for 30 days after delivery. On January 1, 20X1, the domestic firm purchased a 90-day forward contract to sell 50,000 FCs. Exchange rates on selected dates are as follows:
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