On November 1, 2013, Mayberry Corporation, a U.S. corporation, purchased from Cantata Corporation, a Mexican company, some machinery that cost 1,000,000 pesos. The invoice was payable in pesos on January 30, 2014

To hedge against rapid changes in the peso, Mayberry entered into a forward contract on November 1, 2013 with AB Trader & Company, a US brokerage and investment firm. The contract specified that Mayberry would buy 1,000,000 pesos from AB Trader at $0.084 per peso for settlement on January 30, 2014.

Assume that all three companies are subject to the same accounting standards and have December 31st year-ends. The spot rates for pesos on November 1, December 31, and January 30, are $0.082, $0.080, and $0.089, respectively. The 30-day forward rate for pesos on December 31, 2013 is $0.083. The forward contract is not settled net.

Required:
Record General Journal entries for Mayberry Corporation on November 1, December 31, and January 30. If no entry is required on a particular date, indicate "No entry" in the General Journal. This is a fair value hedge.
What will be an ideal response?

Mayberry's General Journal

Date Account Name Debit Credit
11/01/13 Machinery 82,000
Accounts Payable (pesos) 82,000

11/01/13 Contract Receivable (pesos) 84,000
Contract Payable 84,000

12/31/13 Accounts Payable (pesos) 2,000
Exchange Gain 2,000
((.082 - .080) × 1,000,000)

12/31/13 Exchange Loss 1,000
Contract Receivable (pesos) 1,000
[($.083 - $.084) × 1,000,000]

01/30/14 Exchange Loss 9,000
Accounts Payable (pesos) 9,000
[(.089 - .080) × 1,000,000]

Contract Receivable (pesos) 6,000
Exchange Gain 6,000
[(.089 - .083 ) × 1,000,000]

Cash (pesos) 89,000
Contract payable 84,000
Contract Receivable (pesos) 89,000
Cash 84,000

Accounts Payable (pesos) 89,000
Cash (pesos) 89,000