Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 100,000 ruble sale that will be made on January 31, 2018. Include entries for both the firm commitment and the forward contract. The fair value of the firm commitment is measured by referring to changes in the forward rate. (Do not round intermediate calculations. If no entry

Complete question:

On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 330,000 rubles in four months (on January 31, 2018) and receive $115,500 in U.S. dollars. Exchange rates for the ruble follow:Date Spot Rate Forward Rate (to January 31, 2018)October 1, 2017 $ 0.35 $ 0.39 December 31, 2017 0.38 0.41 January 31, 2018 0.40 N/ASharp's incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Sharp must close its books and prepare financial statements on December 31.

Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a 100,000 ruble receivable arising from a sale made on October 1, 2017. Include entries for both the sale and the forward contract.

Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 100,000 ruble sale that will be made on January 31, 2018. Include entries for both the firm commitment and the forward contract. The fair value of the firm commitment is measured by referring to changes in the forward rate.

Solution:

Date             Account tides         Debit (S in ruble)      Credit (S in ruble)

                   and Explanation

Oct 1        Accounts receivable             96,600

                   Sales

            ( 210,000 ruble x $0.46)                                          96,600

Dec 31     Accounts receivable

          ( 50.49-50.46) x (210,000 ruble)   6,300

            Foreign Exchange gain                                           6,300

         Loss on forward contract             2079,21

                  Forward Contract

    (50.52-50.51) x 210,000 ruble =2,100

            2,100 x 0.9901= $2079.21                                   2079.21

Jan31        Accounts receivable (LC U)       4,200

                  Foreign exchange gain

           (50.51-50.49) x 210,000 ruble                                4200

                    Foreign currency                 107,100

                Accounts receivable

          (596.600-56,300-54,200)                                   107,100

                         Cash                              107,100

              Foreign currency (LCU)

               ($0.51 x 210,000 ruble)                                      107,100  

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