Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 16,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 16,000 dinars on March 1, 2021. Relevant exchange rates for the dinar on various dates are as follows: Date Spot Rate Forward Rate (to March 1, 2021) December 1, 2020 $2.70 $2.775 December 31, 2020 2.80 2.900 March 1, 2021 2.95 N/A   A. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars.

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Icebreaker Company (a U.S.-based company) purchases materials from a foreign supplier on December 1, 2020, with payment of 16,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2020, Icebreaker enters into a forward contract to purchase 16,000 dinars on March 1, 2021.

Relevant exchange rates for the dinar on various dates are as follows:

Date Spot Rate Forward Rate
(to March 1, 2021)
December 1, 2020 $2.70 $2.775
December 31, 2020 2.80 2.900
March 1, 2021 2.95 N/A

 

A. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency payable, prepare journal entries for the import purchase and foreign currency forward contract in U.S. dollars.

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