Question

On November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 190,000 FCUs with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 190,000 FCUs. The company properly designates the forward contract as a cash flow hedge of a foreign currency receivable. The following exchange rates apply:

Date	Spot Rate			Forward Rate (to April 30, 2018)
November 1, 2017	$	0.30		$	0.29
December 31, 2017		0.28			0.26
April 30, 2018		0.27			N/A

Bernard's incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610.

1. Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract

Answer 1

No.	Date	General Journal	Debit	Credit
1	11/1/17	Accounts receivable (K)	57000
		Sales (190000*0.30)		57000
		(Record the purchase of materials)
2		No journal entry required
		No journal entry required
		(Record the forward contract.)
3	12/31/17	Foreign exchange loss (190000*(0.30-0.28))	3800
		Accounts receivable (K)		3800
		(Record the entry for changes in the exchange rate.)
4		Forward contract (190000*(0.29-0.26))*0.9610	5478
		AOCI		5478
		(Record the change in the fair value of the forward contract.)
5		AOCI	3800
		Gain on forward contract		3800
		(Record the gain or loss on the forward contract.)
6		Discount (190000*(0.30-0.29))*1/3	633
		AOCI		633
		(Record the allocation of the premium or discount.)
7	3/1/18	Foreign exchange loss (190000*(0.28-0.27))	1900
		Accounts receivable (K)		1900
		(Record the entry for changes in the exchange rate.)
8		Forward contract (190000*(0.29-0.27))-5478	1678
		AOCI		1678
		(Record the entry to adjust the carrying value of the forward contract to its current fair value.)
9		AOCI	1900
		Gain on forward contract		1900
		(Record the gain or loss on the forward contract.)
10		Discount (190000*(0.30-0.29))*2/3	1267
		AOCI		1267
		(Record the allocation of the premium or discount.)
11		Foreign currency (K)	51300
		Accounts receivable (K) (190000*0.27)		51300
		(Record settlement of the forward contract.)
12		Cash (190000*0.29)	55100
		Forward contract		3800
		Foreign currency (K)		51300
		(Record the payment to the foreign supplier.)