Question

On October 1, Year 6, Wheeling Company contracted to sell merchandise to a customer in Switzerland at a selling price of CHF422,000. The contract called for the merchandise to be delivered to the customer on January 31, Year 7, with payment due on delivery. On October 1, Year 6, Wheeling arranged a forward contract to deliver CHF422,000 on January 31, Year 7, at a rate of CHF1 = $1.23. Wheeling's’s year-end is December 31.

The merchandise was delivered on January 31, Year 7, and CHF422,000 were received and delivered to the bank.

Exchange rates were as follows:

	Spot Rates	Forward Rates**
October 1, Year 6	CHF1 = $1.21	CHF1 = $1.23
December 31, Year 6	CHF1 = $1.24	CHF1 = $1.25
January 31, Year 7	CHF1 = $1.22	CHF1 = $1.22

**For contracts expiring on January 31, Year 7.

Required:

(a) Prepare the journal entries (using net method) that Wheeling should make to record the events described assuming that the forward contract is designated as a cash flow hedge. For Exchange Gains/Losses - OCI account, just use OCI, and the credit or debit will determine if it is a gain/loss

(b) Prepare a partial trial balance of the accounts used as at December 31, Year 6.

(c) Prepare the journal entries (using net method) that Wheeling should make to record the events described, assuming that the forward contract is designated as a fair value hedge.

(d) Prepare a partial trial balance of the accounts used as at December 31, Year 6.

Answer 1