Belsen Purchased Inventory on December 1, 2012

question 29

Multiple Choice

Belsen purchased inventory on December 1, 2012. 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 = .35714, and the 60-day forward rate was §1 = $.38462. On December 31, the spot rate was §1 = .34483 and the 30-day forward rate was §1 = .38168. 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.
• B) $76,924.
• C) $588.
• D) $582.
• E) $0, since there is no cost, there is no value for the contract at this date.

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Definitions:

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