Reference no: EM131099515
On June 1, Year 3, Forever Young Corp. (FYC) ordered merchandise from a supplier in Turkey for Turkish lira (TL) 200,000. The goods were delivered on September 30, with terms requiring cash on delivery. On June 2, Year 3, FYC entered a forward contract as a cash flow hedge to purchase TL200,000 on September 30, Year 3, at a rate of $0.73. FYC's year-end is June 30.
On September 30, Year 3, FYC paid the foreign supplier in full and settled the forward contract.
Exchange rates were as follows:
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Spot rates
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Forward rates
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June 1 and 2, Year 3
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TL1 5 $0.70
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TL1 5 $0.730
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June 30, Year 3
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TL1 5 $0.69
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TL1 5 $0.725
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September 30, Year 3
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TL1 5 $0.74
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TL1 5 $0.740
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Required:
(a)(i) Prepare all journal entries required to record the transactions described above.
(ii) Prepare a June 30, Year 3, partial trial balance of the accounts used in Part (i), and indicate how each account would appear in the year-end financial statements.
(b) Prepare all necessary journal entries under the assumption that no forward contract was entered.
(c) Prepare all necessary journal entries to record the transactions described above, assuming that the forward contract was designated as a fair value hedge.
(d) Assume that Carleton is a private company and uses ASPE for reporting purposes. Prepare all necessary journal entries to record the transactions described in the body of the question above.
(e) Which of the above reporting methods would present the highest current ratio at September 30, Year 3? Briefly explain.
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: On June 1, Year 3, Forever Young Corp. (FYC) ordered merchandise from a supplier in Turkey for Turkish lira (TL) 200,000. The goods were delivered on September 30, with terms requiring cash on delivery.
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