On November 1, 20X1, a U

question 27

Essay

On November 1, 20X1, a U.S. company purchased inventory from a foreign supplier for 100,000 FC, with payment to be made on January 31, 20X2, in FC. To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on November 1 to purchase 100,000 FC on January 31, 20X2. The U.S. firm has a December 31 year end for accounting purposes. The following exchange rates may apply:
Discount rate = 12%. The transaction qualifies for treatment as a cash flow hedge.
Required:
Make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 20X1, and January 31, 20X2.

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Definitions:

Critical Thinking

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Objective Judgments

involve making decisions or forming opinions based on unbiased facts and without the influence of personal feelings or prejudices.

Critical Thinking

The intellectually disciplined process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and evaluating information to reach a conclusion.

Well-supported Reasons

Arguments or justifications that are backed by solid evidence or logic.