nadal could have acquired a forward contract on december 15th 2016, to hedge the

Question

nadal could have acquired a forward contract on december 15th 2016, to hedge the foreign exchange risk associated with eachof the three import purchaases. in each case, the forward contract would have had a forward spot rate 2% less than december 15 2016 spot rate, tprepare the cashflow hedge accounting journal entries for the transaction related to beija Flor Ltda.

suppliers 1. (beija Flor Ltda., Sao paulo, Brazil- in voice price 65,000 Brazillian reals)

2. Quetzala SA, Guatemala city, Guatemala- invoice 250,000 Guatemalan Quetzals

3. Mariposa SA deCV, Cancun,mexico - invoice 400,000 Mexican pesos

fiscal year ends december 31

Explanation / Answer

1. Beija Flora Ltds.

Brazilian in voice 65,000 Brazilian reals, 1 brazilian reals : 0.30 USD

Forward rate is 2% less than Dec15,2016. 2% less 0.30*2%= 0.294

Therefore when invoice price is 65,000 Brazilian real = $19500 at $0.30= 1 Brazilian real spot rate(0.30* 65000 brazilian real) while in forward contract it is ($0.294= 1 brazilian real (0.294*65000) $19110 profit = $19500-$19110=$390.

Journal Entry for cashflow hedge accounting

when invoice price is 250000 Gautemala quetzals = $35000 at $0.14= 1 Gautemala quetzalas spot rate(0.14* 250000 brazilian real) while in forward contract it is ($0.1372= 1 Gautemala Quetzal (0.1372*250000) $34300 profit = $35,000-$34300= $700

Journal Entry for cashflow hedge accounting

when invoice price is 400000 Mexican Pesos = $20,800 at $0.052= 1Mexican Pesos spot rate(0.052* 400000 Mexican pesos while in forward contract rate is ($0.051= Mexican Pesos (0.051* 400000) $20,384 profit = $20,800- $20,384= $416

Journal Entry for cashflow hedge accounting

Other comprehensive income($390+$700+$416)

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.