Home / Questions / Slickton Corporation, a U.S. holding company, enters into a forward contract on November 1
Slickton Corporation, a U.S. holding company, enters into a forward contract on November 1, 2011 to speculate in Singapore dollars (S$). The forward contract requires Slickton to sell 1,000,000 Singapore dollars to the exchange broker on January 30, 2012. Net settlement is not permitted. Relevant exchange rates for the Singapore dollar are listed below:
|
|
11/1/11 |
12/31/11 |
1/30/12 |
|
Spot rate |
$0.806 |
$0.797 |
$0.802 |
|
30-day forward rate |
$0.805 |
$0.792 |
$0.796 |
|
90-day forward rate |
$0.804 |
$0.795 |
$0.789 |
Required:
Prepare the journal entries required by Slickton on November 1, 2011, December 31, 2011 (year end), and January 30, 2012.
11) Wild West, Incorporated (a U.S. corporation) sold inventory to a company in the Philippines for 1,600,000 pesos on account on February 1, 2011, with payment expected in 90 days. Wild West entered into a forward contract to hedge this transaction, and properly accounts for the transaction as a cash flow hedge. Wild West has a March 31 fiscal year end, and uses an 8% discount rate, resulting in a 30-day present value factor of .9934. The forward contract is settled net. The relevant exchange rates are shown below:
|
|
Spot Rate |
Forward Rate to May 2, 2011 |
|
February 1, 2011 |
$0.0229 = 1 peso |
$0.0270 = 1 peso |
|
March 31, 2011 |
$0.0254 = 1 peso |
$0.0268 = 1 peso |
|
May 2, 2011 |
$0.0280 = 1 peso |
$0.0280 = 1 peso |
Required:
Record the journal entries needed by Wild West on February 1, March 31, and May 2. Round all entries to the nearest whole dollar.
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