On December 18, 2014, Wabbit Corporation (a U.S. Corporation) has a Forward Contract recorded on their ledger as a debit balance of $17,500. The forward contract was related to a purchase of electronic components purchased overseas,
which were going to be re-sold in the United States. On December 20, the forward contract was settled with a payment of $20,000, and the related parts which cost $118,000 were sold for $160,000 cash. The forward contract is set up to lock in the price for the electronic components when they are sold. The forward contract was settled net. Assume this is a cash flow hedge.
Required:
Prepare the journal entries required by Wabbit on December 20.
What will be an ideal response?
12/20/14 Cash 160,000
Sales 160,000
Cost of Goods Sold 118,000
Inventory 118,000
Sales 20,000
Other Comprehensive Income 17,500
Cash 20,000
Forward Contract 17,500
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