Assuming this is a cash flow hedge; prepare journal entries for this sales transaction and forward contract

Assuming this is a cash flow hedge; prepare journal entries for this sales transaction and forward contract.

Answer:

Date

Spot

Fair Value

FV

Change

Forward to 02/01/19

Forward

Change

10/01/18

$.83
$83,000

$.78

12/31/18

$.85
$85,000
$2,000
$.80
$(1,980)1

02/01/19

$.86
$86,000
$1,000
$.86
$ (6,020)2

1 [(.80 – .78) 100,000] × .9901 = 1,980

2 [(.78 – .86) 100,000] – 1,980 = 6,020

10/01/18
Accounts receivable
83,000

     Sales

83,000

12/31/18
Accounts receivable
  2,000

     Foreign exchange gain

  2,000

AOCI
 1,980

    Forward contract

  1,980

Loss on forward contract
 2,000

     AOCI

  2,000

Discount expense
 3,7503

     AOCI

   3,750

3[100,000 × ($.83 – $.78) × 3/4] for 3 of 4 months

02/01/19
Accounts receivable
  1,000

     Foreign exchange gain

  1,000

AOCI
  6,020

     Forward contract

  6,020

Loss on forward contract
  1,000

     AOCI

  1,000

Discount expense
  1,2504

     AOCI

  1,250

4[100,000 × ($.83 – $.78) × 1/4] for 1 of 4 months

Foreign currency
 86,000

     Accounts receivable

86,000

Cash
 78,000

Forward contract
   8,000

    Foreign currency

86,000