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Question
On December 15, 2011, The International Company received and accepted an order to deliver goods to a foreign customer on February 1, 2012 in exchange for 3 million euros. International must deliver the goods on February 1, 2012 and the foreign customer is required to pay for the goods at the time of delivery. On December 15, 2011, International agreed to a forward contract to deliver 3 million euros to the Speculative Bank on February 1, 2012 in exchange for $2,730,000. The forward rate as of December 31, 2011 was $.915; the spot rate as of February 1, 2012 was $.904.
Requirement:
Prepare the necessary journal entries on December 31, 2011 and February 1, 2012 assuming that the forward contract is being used as a fair value hedge.
Answer
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