Analyze transactions for foreign exchange scenarios.

Please complete in Excel and with the following.

Analyze transactions for foreign exchange scenarios.Utilize hedge accounting to mitigate foreign currency exchange risk.Prepare journal entries for foreign currency transactions.Distinguish the difference between spot rate and forward rate.

Problem 1

Tryant, Inc., a USA-based company has the following transactions:

April 1	Bought inventory valued at 25,000 pesos on account.
June 1	Sold 50% of the inventory for 20,000 pesos on account.
September 1	Collected 15,000 pesos from customers (previously sold on June 1).
October 1	Paid 12,500 peso for inventory purchased on account on April 1.

The exchange rate for 1 peso is:

April 1	0.18
June 1	0.20
September 1	0.23
October 1	0.26
December 31	0.29

Using the information in the tables above, what amounts in the following accounts should be reported as of December 31?

1. Inventory.
2. Cost of goods sold.
3. Sales.
4. Accounts receivable.
5. Accounts payable.
6. Cash.

Problem 2

Branch Company, a USA-based company, sells widgets to a foreign customer, Tiko, on June 1, 2014, on account. Tiko will pay 30,000 liras for the widgets on September 1, 2014.

Branch enters into a forward contract on June 1, 2014, to sell 25,000 liras on September 1, 2014.

Branch's incremental borrowing rate is 12%. The present value factor for two months at an annual interest rate of 12% is 0.9803.

Branch must close the books and prepare financial statements at the end of every quarter.

June 1, 2014	$3.10	$3.155
June 30, 2014	$3.20	$3.20
August 1, 2014	$3.45	N/A

Using the data provided, prepare the necessary journal entries for the following:

1. A cash flow hedge.
2. A fair value hedge.