Question
In: Accounting
On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in...
On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,028,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,028,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows:
| Date | Spot Rate | Forward Rate (to January 31, 2021) |
||||
| October 1, 2020 | $ | 0.28 | $ | 0.32 | ||
| December 31, 2020 | 0.31 | 0.35 | ||||
| January 31, 2021 | 0.33 | N/A | ||||
Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored.
- Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale.
- Determine the net benefit, if any, realized by Mertag from entering into the forward contract.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Lo 9-7, 9-8 37. On October 1, 2020, Mertag Company ( a U.S.-based comany) receives an...
Lo 9-7, 9-8
37. On October 1, 2020, Mertag Company ( a U.S.-based comany)
receives an order from a customer in Poland to deliver goods on
January 31,2021, for a price of 1,000,000 Polish zotys (PLN).
Mertag enters into a forward contract on October 1, 2020, to sell
PLN 1,000,000 in four months ( on January 31, 2021). U.S.
dollar-Polis zioty exchange rates are follows:
October 1, 2020 $0.25 $0.29
December 31, 2020 0.28 0.31
January 31, 2021 0.30 N/A...
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Question 2 On December 15, 2015, a public company receives an order from a customer for...
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