Problem

Martin Corporation, a U.S. import–export firm, enters into a forward contract on October 2...

Martin Corporation, a U.S. import–export firm, enters into a forward contract on October 2, 2011, to speculate in euros. The contract requires Martin to deliver 1,000,000 euros to the exchange broker on March 31, 2012. Quoted exchange rates for euros are as follows:

 

October 2, 2011

December 31, 2011

March 31, 2012

Spot rate

$0.6590

$0.6500

$0.6550

30-day forward rate

$0.6580

$0.6450

$0.6500

90-day forward rate

$0.6560

$0.6410

$0.6460

180-day forward rate

$0.6530

$0.6360

$0.6400

REQUIRED: Prepare the journal entries on Martin’s books to account for the speculation throughout the life of the contract.

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Solutions For Problems in Chapter 12