On November 1, 20X5, US Pelican Company entered into a 90 day forward contract of 200,000£ pounds to hedge a commitment to purchase special equipment on February 1, 20X6 from a British firm Raven Inc. Assume Pelican uses a 12% interest rate.
The relevant exchange rates are of dollars per pound:
Spot Rate Forward Rate
(for Feb 1, 20X6)
November 1, 20X5 1.32 1.35
December 31, 20X5 1.47 1.50
February 1, 20X6 1.55 -
Required:
1.What journal entry did Pelican record on November 1, 20X5?
2.What journal entry did Pelican record on December 1, 20X5?
3.What journal entry did Pelican record on February 1, 20X6 if the purchase was made?