Question
In: Accounting
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 130,000 rubles in four months (on January 31, 2018) and receive $54,600 in U.S. dollars. Exchange rates for the ruble follow:
| Date | Spot Rate | Forward Rate (to January 31, 2018) |
||||
| October 1, 2017 | $ | 0.38 | $ | 0.42 | ||
| December 31, 2017 | 0.41 | 0.44 | ||||
| January 31, 2018 | 0.43 | N/A | ||||
harp's incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Sharp must close its books and prepare financial statements on December 31.
- Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a 130,000 ruble receivable arising from a sale made on October 1, 2017. Include entries for both the sale and the forward contract.
- Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 130,000 ruble sale that will be made on January 31, 2018. Include entries for both the firm commitment and the forward contract. The fair value of the firm commitment is measured by referring to changes in the forward rate.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado)
entered into a forward contract to sell 230,000 rubles in four
months (on January 31, 2018) and receive $119,600 in U.S. dollars.
Exchange rates for the ruble follow:
Date
Spot Rate
Forward Rate
(to January 31, 2018)
October 1, 2017
$
0.48
$
0.52
December 31, 2017
0.51
0.54
January 31, 2018
0.53
N/A
Sharp's incremental borrowing rate is 12 percent. The present
value factor for one month at an...
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado)
entered into a forward contract to sell 310,000 rubles in four
months (on January 31, 2018) and receive $186,000 in U.S. dollars.
Exchange rates for the ruble follow:
Date
Spot Rate
Foward Rate (to January 31, 2018)
10/1/2017
0.56
0.6
12/31/17
0.59
0.62
01/31/2018
0.61
N/A
Sharp's incremental borrowing rate is 12 percent. The present
value factor for one month at an annual interest rate of 12 percent
(1 percent...
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado)
entered into a forward contract to sell 310,000 rubles in four
months (on January 31, 2018) and receive $186,000 in U.S. dollars.
Exchange rates for the ruble follow: Date Spot Rate Forward Rate
(to January 31, 2018) October 1, 2017 $ 0.56 $ 0.60 December 31,
2017 0.59 0.62 January 31, 2018 0.61 N/A Sharp's incremental
borrowing rate is 12 percent. The present value factor for one
month at an...
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado)
entered into a forward contract to sell 340,000 rubles in four
months (on January 31, 2018) and receive $122,400 in U.S. dollars.
Exchange rates for the ruble follow:
Date
Spot Rate
Forward Rate
(to January 31, 2018)
October 1, 2017
$
0.32
$
0.36
December 31, 2017
0.35
0.38
January 31, 2018
0.37
N/A
Sharp's incremental borrowing rate is 12 percent. The present
value factor for one month at an...
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado)
entered into a forward contract to sell 100,000 rubles in four
months (on January 31, 2018) and receive $39,000 in U.S. dollars.
Exchange rates for the ruble follow:
Date
Spot Rate
Forward Rate
(to January 31, 2018)
October 1, 2017
$
0.35
$
0.39
December 31, 2017
0.38
0.41
January 31, 2018
0.40
N/A
Sharp's incremental borrowing rate is 12 percent. The present
value factor for one month at an...
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado)
entered into a forward contract to sell 200,000 rubles in four
months (on January 31, 2018) and receive $98,000 in U.S. dollars.
Exchange rates for the ruble follow:
Date
Spot Rate
Forward Rate
(to January 31, 2018)
October 1,
2017
$
0.45
$
0.49
December 31,
2017
0.48
0.51
January 31,
2018
0.50
N/A
Sharp's incremental borrowing rate is 12 percent. The present
value factor for one month at an...
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to...
On October 1, 2017, Sharp Company (based in Denver, Colorado)
entered into a forward contract to sell 230,000 rubles in four
months (on January 31, 2018) and receive $119,600 in U.S. dollars.
Exchange rates for the ruble follow:
Date
Spot Rate
Forward Rate
(to January 31, 2018)
October 1,
2017
$
0.48
$
0.52
December 31,
2017
0.51
0.54
January 31,
2018
0.53
N/A
Sharp's incremental borrowing rate is 12 percent. The present
value factor for one month at an...
On December 1, 2017, Ringling Company (a U.S.-based company) entered into a three-month forward contract to...
On December 1, 2017, Ringling Company (a U.S.-based company)
entered into a three-month forward contract to purchase 1,010,000
pesos on March 1, 2018. The following U.S. dollar per peso exchange
rates apply:
Date
Spot Rate
Forward Rate
(to March 1, 2018)
December 1, 2017
$
0.009
$
0.012
December 31, 2017
0.011
0.014
March 1, 2018
0.015
N/A
Ringling's incremental borrowing rate is 9 percent. The present
value factor for two months at an annual interest rate of 9 percent...
On November 1, 2015, Fortune Company (a U.S.-based company) entered into a five-month forward contract to...
On November 1, 2015, Fortune Company (a U.S.-based company)
entered into a five-month forward contract to buy 800,000 Mexican
pesos on March 31, 2016. The following U.S. dollar per
peso exchange rates apply:
Forward
Rate
Date Spot
Rate (to
03-01-2016)
November 1, 2015
………………… $0.052 $0.047
December 31, 2015
………………. 0.045 0.057
March 31, 2016
……………………… 0.048
The present value factor corresponding to the company’s
incremental borrowing rate for time period involved is 0.9706
Question #11: Forward contract
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Problem 5. On November 1, 2017, US Pelican Company entered into a 90 day forward contract...
Problem 5. On November 1, 2017, US Pelican
Company entered into a 90 day forward contract of £200,000 pounds
to hedge a commitment to purchase special equipment on February 1,
2018 from a British firm Raven Inc. Assume Pelican uses a 12%
interest rate.
The relevant exchange rates are of dollars per pound:
Spot Rate
Forward Rate (for Feb 1, 2018)
November 1, 2017
$1.32
$1.35
December 31, 2017
1.47
1.50
February 1, 2018
1.55
-
Instructions
1. What journal...
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