Assume forward was designated as air value hedge

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Reference no: EM131906712

Merele Corp., based in the US, sold inventory for 500,000 Euro to Hacker Co. on December 2, 2008. The customer will pay March 1, 2009, payable in Euro. On 12/2/2008, Merele entered into a 90-day forward contract to hedge the receivable from Hacker. The following exchange rates apply: Spot Rate 12/2/08 $1.70, 12/31/08 $1.705, 3/1/09 $1.7. Forward Rate for 3/1/09 at 12/2/08: 1.68, at 12/31/08: $1.69.

a) Assume the Forward was designated as a cash flow hedge and Merele’s incremental borrowing rate is 6% giving a 60-day present value factor of .9901. Give all entries related to these transactions and date the entries.

b) Assume the Forward was designated as a fair value hedge. Give all entries for these transactions and date the entries.

Reference no: EM131906712

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