On December 15,2011,Electronix Company Purchased Inventory from a Foreign Supplier

question 2

Essay

On December 15,2011,Electronix Company purchased inventory from a foreign supplier for 2,000,000 foreign currency units (fcu's).Payment will be made on February 13,2012.On December 15,2011,to hedge the transaction,Electronix signed a forward contract to buy 2,000,000 fcu's in 60 days.Electronix uses a discount rate of 5% resulting in a 45-day present value factor of .9938.The forward contract will be settled net.The related exchange rates are shown below:
On December 15,2011,Electronix recorded a debit to Inventory and a credit to Accounts Payable (fcu)for $20,000,using the current spot rate.
Required:
1.Show the required entries on December 31,2011 if the hedge is a cash flow hedge.Round to the nearest whole dollar.
2.Show the required entries on December 31,2011 if the hedge is a fair value hedge.Round to the nearest whole dollar.

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Definitions:

Southern Hemisphere

The half of the Earth that is south of the Equator, characterized by opposite seasons to the Northern Hemisphere.

Boreal Forest

The northern coniferous forest biome found primarily in Canada, northern Europe, and Siberia; also called taiga.

Corresponding Latitudes

Locations across the globe that share the same distance north or south of the Equator.

Tundra

A cold, treeless biome found in the Arctic and atop mountains, where the climate is characterized by very low temperatures, short growing seasons, and permafrost.