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In: Accounting

C1.          On October 15, our company has executed a purchase order for new equipment to be...

C1.          On October 15, our company has executed a purchase order for new equipment to be purchased from a supplier in Denmark for a purchase price of DKK 1.2 million. The equipment is deliverable on March 31. In order to hedge the commitment to pay DKK1.2 million, we enter into a forward exchange contract on October 15 to receive DKK1.8 million on March 31 at an exchange rate of $0.17: DKK1. Assume the following exchange gates:

Date

Spot Rates

Forward Rates

October 15

$0.15:DKK1

$0.17:DKK1

December 31

$0.16:DKK1

$0.18:DKK1

March 31

$0.20:DKK1

n/a

Required: Prepare the journal entries to record the following:

  • Execution of the purchase order and forward contract
  • Adjusting entries at December 31

Receipt of equipment and payment to equipment supplier on March 31.

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ekkarill92 answered 1 year ago
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