Lawrence Company ordered parts costing FC350,000 from a foreign supplier on May
ID: 2723626 • Letter: L
Question
Lawrence Company ordered parts costing FC350,000 from a foreign supplier on May 12 when the spot rate was $0.14 per FC. A one-month forward contract was signed on that date to purchase FC350,000 at a forward rate of $0.15. The forward contract is properly designated as a fair value hedge of the FC350,000 firm commitment. On June 12, when the company receives the parts, the spot rate is $0.17. At what amount should Lawrence Company carry the parts inventory on its books?
$56,000.
$52,500.
$49,000.
$59,500.
Lawrence Company ordered parts costing FC350,000 from a foreign supplier on May 12 when the spot rate was $0.14 per FC. A one-month forward contract was signed on that date to purchase FC350,000 at a forward rate of $0.15. The forward contract is properly designated as a fair value hedge of the FC350,000 firm commitment. On June 12, when the company receives the parts, the spot rate is $0.17. At what amount should Lawrence Company carry the parts inventory on its books?
Explanation / Answer
Ans is $52,500, because Lawrence company should book the inventory in its books at the rate on which the company has entered into the contract and the rate at which it paid the supplier and that rate is $ 0.15.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.