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AdvanceAccIIWeek5CTOp21.xlsx

Information

ACT506
Critical Thinking Assignment Option #2
Journal Entries for Hedging a Forecasted Foreign Currency Transaction: A Foreign Currency Cash Value Hedge
Information:
1).	Push Corp operates in the United States. It uses the Euro for local currency transactions.
2).	On Oct 01, 20x7, Push Corp orders inventory items from German Corporation.
3).	Within 30 days, the delivery of the German inventory parts will take place, Nov 1, 20x7.
4).	The contract price is Euro 5,000 to be paid in 180 days, 6 months.
5).	On Oct 01, 20x7, Push Corp hedges its foreign currency payable commitment with a forward exchange contract to receive Euro 5,000 in 210 days (30+180).
6).	The purchase of inventory is forecasted for Nov 20x7, but this is not a binding agreement.
7).	Relevant exchange Rates
			Spot Rate	Forward Exchange Rate
		10/1/20x7	1.1	1.25	210 days
		11/1/20x7	1.15	1.3	180 days
		12/31/20x7	1.2	1.35	120 days
		4/28/20x8	1.15	0	0

Journal Entries for Hedging a Forecasted Foreign Currency Transaction: A Foreign Currency Cash Value Hedge
Journal Entries:			Debit	Credit
A	Foreign Currency Receivable from Exchange Broker
OCT 01 20x7		Dollars Payable to Exchange Broker($)
	(Record signed forward exchange contract for receipt of 5,000 Euro in 210 days)
B.
11/1/20x7	Foreign Currency Receivable (EURO)
		Other Comprehensive Income
	(Record adjustment of forward contract to fair Value)
11/1/20x7	Inventory
		Accounts Payable (Euro)
12/31/20x7	Foreign Currency Receivable (EURO)
		Foreign Currency Gain
12/31/20x7	Foreign Currency Loss
		Accounts Payable
4/28/20x8
	Foreign Currency loss
		Foreign Currency Receivable
	Accts Payable
		Foreign Currency Gain
4/28/20x8
	Dollars Payable to Broker
		Cash
	Foreign Currency Units
		Foreign Currency Rec
	Acct Payable
		Foreign Currency Units
	Other Comprehensive Income
		Cost of Goods Sold
	Cost of Good Sold
		Inventory