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Chapter 11 - Multinational Accounting: Foreign Currency Transactions And Financial Instruments
P-11-23A (continued)
c. Use of forward contract as cash flow hedge of forecasted foreign currency transaction.
12/1/X1
12/31/X1
1/30/X2
3/31/X2
Commitment
Balance Sheet
Transaction
Settlement
Date
Date
Date
Date
— Sign foreign
— Purchase of
— Settle
exchange contract
furniture
foreign
to hedge forecasted
resulting
currency
foreign currency
in foreign
commitment
transaction.
currency
and receive
payable
A$100,000
— Pay foreign
currency
payable
Forward rate:
A$1 = $0.609
A$1 = $0.612
A$1 = $0.605
Spot rate:
A$1 = $0.600
A$1 = $0.610
A$1 = $0.608
A$1 = $0.602
December 1, 20X1
Foreign Currency Receivable from Exchange Broker (A$)
60,900
Dollars Payable to Exchange Broker ($)
60,900
Signed 120-day forward contract as a cash flow hedge of the forecasted
foreign currency transaction of the purchase of furniture on January 30 for
A$100,000:
$60,900 = A$100,000 x $0.609 forward rate
December 31, 20X1
Foreign Currency Receivable from Exchange Broker (A$)
300
Other Comprehensive Income
300
Revalue foreign currency receivable to fair value and record OCI for effective
portion of change in fair value of the derivative designated as a cash flow
hedge:
$61,200 = A$100,000 x $0.612 Dec. 31 forward rate
- 60,900 = A$100,000 x $0.609 Dec. 1 forward rate
$ 300 = A$100,000 x ($0.612 - $0.609)
