REFERENCE: Ref.09_02 Brisco Bricks Purchases Raw Material from Its Foreign Supplier,Bolivian Clay,on

question 6

Multiple Choice

REFERENCE: Ref.09_02
Brisco Bricks purchases raw material from its foreign supplier,Bolivian Clay,on May 8.Payment of 2,000,000 foreign currency units (FC) is due in 30 days.May 31 is Brisco's fiscal year-end.The pertinent exchange rates were as follows:
-Belsen purchased inventory on December 1,2008.Payment of 200,000 stickles was to be made in sixty days.Also on December 1,Belsen signed a contract to purchase §200,000 in sixty days.The spot rate was $1 = §2.80,and the 60-day forward rate was $1 = §2.60.On December 31,the spot rate was $1 = §2.90 and the 30-day forward rate was $1 = §2.62.Assume an annual interest rate of 12% and a fair value hedge.The present value for one month at 12% is .9901.
In the journal entry to record the establishment of a forward exchange contract,at what amount should the Forward Contract account be recorded on December 1?

• A)$71,428.57.
• B)$76,923.08.
• C)$5,549.51.
• D)$587.20.
• E)$ 0,since there is no cost,there is no value for the contract at this date.

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