On December 15,2014,Electronix Company Purchased Inventory from a Foreign Supplier

question 32

Essay

On December 15,2014,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 15,2014,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 15,2014,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 31,2014 if the hedge is a cash flow hedge.Round to the nearest whole dollar.
2.Show the required entries on December 31,2014 if the hedge is a fair value hedge.Round to the nearest whole dollar.

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Definitions:

Unconscious Forces

Pertains to the processes in the human mind not directly accessible to consciousness, which influence thoughts, feelings, and behaviors according to psychoanalytic theory.

Social Cognitive Theory

A theory in psychology that posits that learning occurs in a social context with a dynamic and reciprocal interaction of the person, environment, and behavior.

Cognitive Processes

Mental activities involved in acquiring, retaining, and using knowledge, such as perception, memory, language, and problem-solving.

Secondary Reinforcers

Stimuli that acquire their reinforcing properties through their association with primary reinforcers.