Problem
Pumped Up Company purchased equipment from Switzerland for 154,000 francs on December 16, 20X7, with payment due on February 14, 20X8. On December 16, 20X7, Pumped Up also acquired a 60-day forward contract to purchase francs at a forward rate of SFr 1 = $0.45. On December 31, 20X7, the forward rate for an exchange on February 14, 20X8, is SFr 1 = $0.475. The spot rates were
December 16, 20X7 1 SFr = $ 0.46
December 31, 20X7 1 SFr = 0.48
February 14, 20X8 1 SFr = 0.47
Part I:
Assume that the forward contract is not designated as a hedge but is entered into to manage the company's foreign currency-exposed accounts payable.
a. Prepare journal entries for Pumped Up to record the purchase of equipment; all entries associated with the forward contract; the adjusting entries on December 31, 20X7; and entries to record the revaluations and payment on February 14, 20X8.