A455 Quiz 5 solution

A455 Quiz 5 solution - SOLUTION QUIZ 5B Lawrence Company a...

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ACCT455/555 FALL 2009 SOLUTION QUIZ 5A Lawrence Company, a U.S. company, purchased parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.025 per baht with payment due one month later. A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $.027. The forward contract is properly designated as a fair value hedge of the 1,000,000 payable. On August 7, when the parts are paid for, the spot rate is $.028. Prepare the journal entries needed to record the purchase and settlement of the purchase and the forward contract fair value hedge. 7/7 1,000,000 X .025 = 25,000 PURCHASES 25,000 A/P 25,000 8/7 1,000,000 X .028 = 28,000 FOREIGN EXCHANGE LOSS 3,000 A/P 3,000 FORWARD CONTRACT 1,000 FOREIGN EXCHANGE GAIN 1,000 (1,000,000 X .027 = 27,000 – 28,000) FOREIGN CURRENCY 28,000 FORWARD CONTRACT 1,000 CASH 27,000 (1,000,000 X .027) A/P 28,000 FOREIGN CURRENCY 28,000
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ACCT455/555 FALL 2009
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Unformatted text preview: SOLUTION QUIZ 5B Lawrence Company, a U.S. company, purchased parts costing 800,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.030 per baht with payment due one month later. A one-month forward contract was signed on that date to purchase 800,000 bahts at a rate of $.032. The forward contract is properly designated as a fair value hedge of the 800,000 payable. On August 7, when the parts are paid for, the spot rate is $.033. Prepare the journal entries needed to record the purchase and settlement of the purchase and the forward contract fair value hedge. 7/7 800,000 X .030 = 24,000 PURCHASES 24000 A/P 24,000 8/7 800,000 X .033 = 26,400 FOREIGN EXCHANGE LOSS 2,400 A/P 2,400 FORWARD CONTRACT 800 FOREIGN EXCHANGE GAIN 800 (800,000 X .027 = 25,600 – 26,400) FOREIGN CURRENCY 26,400 FORWARD CONTRACT 800 CASH 25,600 (800,000 X .027) A/P 26,400 FOREIGN CURRENCY 26,400...
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