Accounting Journal Entries

Journal Entries (Ricky and Potatoes)

  1. Assumes      that Ricky Corporation (Ricky) normally sells goods in France and      therefore has a stream of income which is denominated in Euros. Ricky      enters into a master agreement with a bank to convert this future stream      of Euros into US dollars. Determine whether this agreement is considered a      derivative under both the US GAAP and under the IFRS. Support your      decision with reference(s) to the appropriate literature issued by both      standard setters.
  2. The      Potato Company (Potato) produces frozen French fries and therefore uses      potatoes as the major raw material in its manufacturing process. Potato      enters a forward exchange contract to purchase 20 bushels of potatoes in      30 days for $1,200. The contract has a net settlement provision.

Part 1: Assume that the potatoes are worth $1,250 at the end of 30 days. Explain in detail how the forward exchange contract might or would be settled in 30 days? What are Potato’s options with respect to the forward exchange contract?

Part 2: Assume that potatoes are not easily convertible into cash and that Potato has a history of taking delivery of the potatoes under these types of contracts (gross settlement). Potato has decided NOT to document the instrument as a normal purchase and sales contract. Prepare the journal entries required under both the US GAAP and IFRS separately, with detailed explanations of the basis for each dollar journal entry amount, and a detailed journal entry explanation with appropriate reference(s) to the accounting literature for both standard-setters for each respective journal entry.

Requirements:

  • Write      a paper of 4 pages in length, not counting the title and reference pages,      which you must include.
  • Use      terms, evidence, and concepts from class readings, including professional      business language.
  • Cite      at least 4-5 credible, academic or professional sources for this      assignment, outside of the textbook. Format your paper according to APA      format.

Chapter 11 in Advanced Financial Accounting (pp. 573-599)

Ernst & Young Foundation. (2017). Derivatives including Hedging – lecture notes.

Ernst & Young Foundation. (2017). Derivatives including Hedging – PowerPoint.

Ernst & Young Foundation. (2017). Derivatives including Hedging – questions.

 
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