Problem

On November 2, 2011, Baz, a U.S. retailer, ordered merchandise from Mat of Japan. The merc...

On November 2, 2011, Baz, a U.S. retailer, ordered merchandise from Mat of Japan. The merchandise is to be delivered to Baz on January 31, 2012, at a price of 1,000,000 yen. Also on November 2, Baz hedged the foreign currency commitment with Mat by contracting with its exchange broker to buy 1,000,000 yen for delivery on January 31, 2012. Exchange rates for yen are:

 

11/2/11

12/31/11

1/31/12

Spot rate

$0.0075

$0.0076

$0.0078

30-day forward rate

$0.0076

$0.0078

$0.0079

90-day forward rate

$0.0078

$0.0079

$0.0080

REQUIRED

1. Prepare the entry (or entries) on Baz’s books on November 2, 2011.


2. Prepare the adjusting entry on December 31, 2011.

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Solutions For Problems in Chapter 13