On december 1, 2008, a domestic firm agrees to sell goods (cost, $30,000) for 50,000 FCs...

On december 1, 2008, a domestic firm agrees to sell goods (cost, $30,000) for 50,000 FCs to a foreign customer, with delivery and payment to be made on March 1, 2009. December 1, 2008, thr domestic firm purchased a 90-day forward contract to sell 50,000 FCs. Exchange rates on selected dates are as follows:
Date              Spot Rate               Fwd Rate
12/1/08       1 FC = $1.00          1 FC = $0.99
12/31/08     1 FC = $0.98          1 FC = $0.97
3/1/09          1 FC = $0.96          1 FC = $0.96

Discount rate = 10%

Required:
a) Prepare the journal entries needed to properly reflect the sales transactions and the forward exchange contract. The forward contract meets the conditions necessary to be classified as a hedge on an identifiable foreign currency commitment.
b) Show how the transactions will be reflected in the 12/31/08 balance sheet.

Expert Solution

ekkarill92 answered 2 years ago

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