Question

Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 33,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 33,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:

Date	Spot Rate			Forward Rate (to March 1, 2018)
December 1, 2017	$	5.10		$	5.175
December 31, 2017		5.20			5.300
March 1, 2018		5.35			N/A

Brandlin's incremental borrowing rate is 18 percent. The present value factor for two months at an annual interest rate of 18 percent (1.5 percent per month) is 0.9707. Brandlin must close its books and prepare financial statements at December 31.

Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

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1

Record the sales and foreign currency account receivable.

2

Record the forward contract.

3

Record the entry for changes in the exchange rate.

4

Record the change in the fair value of the forward contract.

5

Record the gain or loss on the forward contract.

6

Record the allocation of the premium or discount.

7

Record the entry for changes in the exchange rate.

8

Record the entry to adjust the carrying value of the forward contract to its current fair value.

9

Record the gain or loss on the forward contract.

10

Record the allocation of the premium or discount.

11

Record the receipt of korunas from the foreign customer.

12

Record the settlement of the forward contract.

Answer 1

Part A-1

No.	Date	General Journal	Debit	Credit
1	12/1/17	Accounts receivable (K)	168300
		Sales (33000*5.10)		168300
		(Record the purchase of materials)
2		No journal entry required
		No journal entry required
		(Record the forward contract.)
3	12/31/17	Accounts receivable (K)	3300
		Foreign exchange gain (33000*(5.10-5.00))		3300
		(Record the entry for changes in the exchange rate.)
4		AOCI	4004
		Forward contract (33000*(5.175-5.300))*0.9707		4004
		(Record the change in the fair value of the forward contract.)
5		Loss on forward contract	3300
		AOCI		3300
		(Record the gain or loss on the forward contract.)
6		AOCI	825
		Premium revenue (33000*(5.175-5.100))*1/3		825
		(Record the allocation of the premium or discount.)
7	3/1/18	Accounts receivable (K)	4950
		Foreign exchange gain (33000*(5.35 -5.20))		4950
		(Record the entry for changes in the exchange rate.)
8		AOCI	1771
		Forward contract (33000*(5.35-5.175))-4004		1771
		(Record the entry to adjust the carrying value of the forward contract to its current fair value.)
9		Loss on forward contract	4950
		AOCI		4950
		(Record the gain or loss on the forward contract.)
10		AOCI	1650
		Premium revenue (33000*(5.175-5.1000))*2/3		1650
		(Record the allocation of the premium or discount.)
11		Cash (33000*5.175)	170775
		Forward contract	5775
		Foreign currency (K)		176550
		(Record the receipt of korunas from the foreign customer.)
12		Foreign currency (K)	176550
		Accounts receivable (K) (33000*5.35)		176550
		(Record settlement of the forward contract.)