Part 1: Using the Assignment Option 2 spreadsheet (linked at the bottom of this

Question

Part 1:
Using the Assignment Option 2 spreadsheet (linked at the bottom of this page), complete the following hedging transaction.

Required:
Prepare the journal entries for a cash flow hedge.

Follow instructions from the worksheet carefully. Use formulas to enter amounts and data. Show details of your calculations and processes. Explain each journal entry or why one was omitted

Journal Entries for Hedging a Forecasted Foreign Currency Transaction: A Foreign Currency Cash Value Hedge Journal Entries: Debit Credit A Foreign Currency Receivable from Exchange Broker OCT 01 20x7 Dollars Payable to Exchange Broker($) (Record signed forward exchange contract for receipt of 5,000 Euro in 210 days) B. 11/1/20x7 Foreign Currency Receivable (EURO) Other Comprehensive Income (Record adjustment of forward contract to fair Value) 11/1/20x7 Inventory Accounts Payable (Euro) 12/31/20x7 Foreign Currency Receivable (EURO) Foreign Currency Gain 12/31/20x7 Foreign Currency Loss Accounts Payable 4/28/20x8 Foreign Currency loss Foreign Currency Receivable Accts Payable Foreign Currency Gain 4/28/20x8 Dollars Payable to Broker Cash Foreign Currency Units Foreign Currency Rec Acct Payable Foreign Currency Units Other Comprehensive Income Cost of Goods Sold Cost of Good Sold Inventory Option #2: Hedging Transaction: Cash Flow Hedge Part 1: Using the Assignment Option 2 spreadsheet (linked at the bottom of this page), complete the following hedging transaction. Required Prepare the journal entries for a cash flow hedge Follow instructions from the worksheet carefully. Use formulas to enter amounts and data. Show details of your calculations and processes. Explain each journal entry or why one was omitted. Do not hard code numbers in the Excel worksheet. Submit your downloaded and completed Excel file with your name added to the file name for grading by your instructor to the CT Assignment dropbox for Module 5 Part 2: Research ASC 815. Describe the proper accounting and reporting for a cash flow hedge. What is the accounting treatment of the gain or loss on your hedging instrument and hedge item at the reporting date? Discuss the effective and ineffective portions of the gain or loss on the hedging instrument. Also, explain the effective and ineffective portion of the gain or loss on the hedging instrument in other comprehensive income (OCI)

Explanation / Answer

Journal entries for hedging a Forecasted Foreign Currency transactions.

Debit Credit

01/10/20x7

A.  Foreign Currency receivable from exchange broker A/c Dr. 3595.89((5000*1.25)*210/365)

To Dollars payable to exchange broker A/c 3595.85

(Being foreign currency receivable from exchange broker)

01/11/20x7

B.  Foreign Currency receivable   A/c Dr. 750(5000*0.15)

To Comprehensive income 750

(Being adjustment of forward contract to fair value)

(Note :- Difference of 1.3 and 1.15 = 0.15)

Inventory A/c Dr. 5750(5000*1.15)  

To Accounts payable 5750

(Being amount payable )

31/12/20x7

Foreign currency receivable A/c Dr. 500(5000*0.1)

To Foreign currency gain 500

(Being exchange gain recognised)

  Foreign currency loss A/c Dr. 250(5000*0.05)

To Accounts payable 250

(Being exchange loss recognised)

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