Problem -
Our firm purchased equipment for 200,000 Zimbabwean dollars (ZD$) on December 1, 2013. Our year end is December 31, and the payable is due on February 28, 2014. On December 1, 2013, we entered into a forward exchange contract with the bank to provide us with 200,000 ADs on February 28, 2014. This is classified as a fair value hedge.
The following rates were in effect:
Forward Rates:
December 1, 2013; 90 day forward rate - ZD$1 = CDN$ .62
December 31, 2013; 60 day forward rate - ZD$1 = CDN$ .60
Spot rates:
December 1, 2013 - ZD$1 = CDN$ .64
December 31, 2013 - ZD$1 = CDN$ .61
February 28, 2014 - ZD$1 = CDN$ .59
Required: Provide all of the necessary journal entries to record the both the account payable and the hedge.