Question

Hedged Sale Commitment and Exposed Asset Position

On June 25, 2020, GlobalAgra Inc., a U.S. company, received a purchase order from a Swiss customer for delivery of merchandise on July 10, 2020, at a price of CHF10,000,000, payable in Swiss francs (CHF) on September 10, 2020. To hedge its exposure to exchange rate changes, on June 25, 2020, GlobalAgra entered a forward contract for delivery of CHF10,000,000 to the broker on September 10, 2020. The merchandise was delivered as scheduled. On September 10, 2020, GlobalAgra received payment from the customer, and delivered the Swiss francs to the broker to close the forward contract. GlobalAgra’s accounting year ends December 31. Exchange rates ($/ CHF) are as follows:

	Spot rate		Forward rate for delivery September 10, 2020
June 25, 2020	$1.0506		$1.0507
July 10, 2020	1.0510		1.0511
September 10, 2020	1.0512		--

Required

Prepare the journal entries GlobalAgra made on July 10, 2020, and September 10, 2020, to record the above transactions.

Date	Description		Debit	Credit
7/10/20			Answer	Answer
			Answer	Answer
	To record change in fair value of the forward contract.
			Answer	Answer
			Answer	Answer
	To record gain or loss on U.S. dollar value of the firm commitment.
			Answer	Answer
			Answer	Answer
	To record delivery of goods to the customer.
			Answer	Answer
			Answer	Answer
	To adjust sales revenue for the change in value of the firm commitment.
9/10/20			Answer	Answer
			Answer	Answer
	To record gain or loss on accounts receivable.
			Answer	Answer
			Answer	Answer
	To record change in fair value of the forward contract.
			Answer	Answer
			Answer	Answer
	To record receipt of Swiss francs from the U.K. customer.
	Cash		Answer	Answer
			Answer	Answer
			Answer	Answer
	To record delivery of the currency to the dealer, and settlement of the forward contract.

Answer 1

Date	Description		Debit	Credit
07-10-20	Profit & loss Account Dr		$9,967
	To Derivative Liability			$9,967
	(To record change in fair value of the forward contract.)
	Profit & loss Account Dr		$3,000.00
	To Derivative Liability			$3,000.00
	(To record gain or loss on U.S. dollar value of the firm commitment.)
	Swiss Customer A/c Dr		$95,14,748
	To Sales Account			$95,14,748
	(To record delivery of goods to the customer.)
	Sales Account Dr		$4,000.00
	To Derivative Liability			$4,000.00
	To adjust sales revenue for the change in value of the firm commitment.
09-10-20	Profit & loss Account Dr		$1,810
	To Swiss Customer Account			$1,810
	(To record gain or loss on accounts receivable.)
	Profit & loss Account Dr		$1,000.00
	To Derivative Liability			$1,000.00
	(To record change in fair value of the forward contract.)
	Cash A/C Dr		$95,12,938
	To Swiss Customer Account			$95,12,938
	(To record receipt of Swiss francs from the U.K. customer.)
	Cash Dr		$4,527
	Derivative Liability A/c Dr		$17,966.88
	To Profit & loss Account			$22,493.84
	To record delivery of the currency to the dealer, and settlement of the forward contract.