Bond Corporation Manufactures and Sells Goods for Casinos Assignment

Bond Corporation Manufactures and Sells Goods for Casinos Assignment

Instructions/Descriptions

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Bond Corporation manufactures and sells goods for casinos. On July 1, Year 5, MT Carlo contracted to purchase goods from Bond Corp in Europe at a price of E700,000 (E is for Euro).

The contract stipulated that the goods be delivered to MT Carlo on October 31, Year 5. Payment is due from MT Carlo on the delivery date. Only July 1, Year 5, MT Carlo arranged a forward contract to purchase E700,000 on October 31, Year 5, at a rate of Euro 1 = $1.51. MT Carlo’s year end is September 30.

As per the contract, the goods were delivered on October 31, Year 5. On that date, MT Carlo purchased E700,000 from the bank and delivered it to Bond.

Exchange rates were as follows:

Spot Rate, Forward Rate

July 1, Y5 E1 = $1.42, E1 = $1.51

September 30, Y5 E1 = $1.49, E1 = $1.53

October 31, Y5 E1 = $1.50, E1 = $1.50

Required:

Prepare the journal entries that MT Carlo should make to record the events described in the narrative assuming that the forward contract is designated as a cash flow hedge.

Prepare a partial trial balance of the accounts used as at September 30, Year 5. Indicate how each would appear on the company’s financial statements.

Prepare the journal entries that MT Carlo should make to record the events described in the narrative assuming that the forward contract is designated as a fair value hedge.

Prepare a partial trial balance of the accounts used as at September 30, Year 5. Indicate how each would appear on the company’s financial statements.

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