Denizen Corporation’s Purchase of Electrical Supplies

Denizen Corporation’s Purchase of Electrical Supplies

Mainly, cash flow hedging revolves around the principle of mitigating foreign exchange risks that a company would be privy to if they were to make payments in line with the floated rates. Therefore, organizations seek to explore this option to ensure it pays an appropriate price on their supplies, especially when the transactions are widespread over an elongated period. Thus, Denizen Corporation’s cash flow hedge on the anticipated purchase of electronics provides an excellent example that illustrates the way an organization can save up a decent amount of money on international purchases that use different currencies (Moles, 2016). Mostly, the currency exchange rates are floated on numerous factors, which makes the pricing of the currencies fluctuate. Hence, the best way to mitigate these issues is through using financial instruments such as forward contracts to protect the organization from paying higher monies in the future (Chapter 6, n.d). This approach allows a firm to hedge a specific amount of money at a set date in the future for an agreed currency rate. Subsequently, it enables the organization to have a clear image of its purchase amid the fluctuation in the exchange markets. Also, it allows the company to save and gain on some monies based on the translation costs that suffice during the conversion of currencies. With context to Denizen’s purchase, the journal entries that document the cash flow hedge and purchase of supplies demonstrates the way the company manages to save up some monies in translation costs when the transaction matures.

Figure 1: December, 01 20X8

  Dr Cr
DateItemAmountItemAmount
Dec 1 20×8120 day Forward Contract$188,000Cash$188,000
 
$188,000$188,000
To record the entry of the 120-day forward contract agreement that Denizen undertakes.

On December 01, 20×8, Denizen gets into a forward contract that allows the company to hedge the anticipated purchase of goods worth $200,000 at a spot rate of 0.940 and a forward rate of 0.944. This transaction implies that Denizen credits $180,000 from its cash to activate the contract, which indicates that the put rate is 0.944(Chapter 6, n.d). Therefore, the transaction in figure 1 highlights the appropriate journal entries explaining the nature of the deal the company enters.

Figure 2: December, 31 20×8

  Dr Cr
DateItemAmountItemAmount
Dec 31 20×8Gain on Foreign Currency$200Firm’s commitment to purchase$200
 
$200$200
To record a gain on foreign exchange on the hedge for the year ended 20×8

Notably, the company ends its fiscal year on December 31, 20×8, which means that the organization must journalize its hedging gains and loss in the balance sheet. Accordingly, the company realizes a gain of $200 on its forward contract as the spot rate lies at 0.945, while the forward rate is 0.944. This aspect means that the company saves up $200 in translation costs since; 0.945-0.944= 0.001, which is multiplied by the company’s commitment of $200,000(Moles, 2016). The gain on this transaction is instrumental in justifying the fluctuating rate that is drawn from the spot rate based on the closure of Denizen’s financial period.

Figure 3: January, 30 20×9

  Dr Cr
DateItemAmountItemAmount
Jan 30 20×9Electrical Supplies$200,000Account Payable$200,000
 
$200,000$200,000
To record the purchase of electronic supplies on credit.

In January, Denizen completes its anticipated purchase of electronics of $200,000 on credit in line with the forward contract it entered 30 days prior. This transaction makes the accounts payable in the next 90 days(Chapter 6, n.d). Therefore, the journal entry debits the electrical supplies account with goods worth $200,000 and credits account payable with the same to capture the firm’s obligation to pay the merchandise’s fair value.

Figure 4: March 31, 20×9

  Dr Cr
DateItemAmountItemAmount
March 1 20×9Accounts Payable$200,000Forward Contract Payable$188,000
 Gain on Foreign exchange$800
Gain on Hedge Purchase$11,200
$200,000$200,000
To record payment of Electronics Supplied on January 1, 20×9.

The company’s gains on the money it saves in the forward contract emanate on the day of payment, as detailed in figure 4. Principally, the company credits its forward contract payable with $188,000 (based on its contractual terms), credits gain on foreign exchange of $800 (since the forward rate on March 31 is 0.944 to a spot of 0.940) and crediting the gain on hedging worth $11,200 the company saves up when purchasing goods worth $200,000 (Krogdahl and Cowan, 2017). These entries illustrate the way Denizen saves up a substantial amount of money on its purchases due to the forward contract it entered four months prior.

In summary, the cash flow hedging Denizen undertakes proves to be pivotal in protecting the company from foreign exchange risks as it saves up a considerable amount of money. Notably, the forward contract provides the organizations with a discount on its transactions, which means that it is instrumental in minimizing the costs the company is obligated to finance. Hence, the use of this derivative is essential in international finance, especially for companies like Denizen that procure inventory from foreign markets. Thus, using a forward contract plays a fundamental role in alleviating risks, while providing the firm with adequate financial cushions in paying creditors.

References

Chapter 6.(n.d). Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Retrieved on 27/5/2020 from https://www.gasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175828437360&blobheader=application/pdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=937956&blobheadervalue1=filename=Chapter_6_Marked.pdf&blobcol=urldata&blobtable=MungoBlobs

Krogdahl, Zach and, Cowan, Aaron. (2017). FX and Its Impacts on Financials and Hedging -Changes are Coming. Chatham Financial. Retrieved on 27/5/2020 from https://cdn.ymaws.com/www.coafp.net/resource/resmgr/17BFF/Presentations/FX_&_Its_Impacts_on_Financia.pdf

Moles, Peter. (2016). Derivatives.Edinburgh Business School. Retrieved on 27/5/2020 from https://www.ebsglobal.net/EBS/media/EBS/PDFs/Derivatives-Course-Taster.pdf

Get professional assignment help cheaply

Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?

Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.

Our essay writers are graduates with diplomas, bachelor, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.

Why choose our academic writing service?

  • Plagiarism free papers
  • Timely delivery
  • Any deadline
  • Skilled, Experienced Native English Writers
  • Subject-relevant academic writer
  • Adherence to paper instructions
  • Ability to tackle bulk assignments
  • Reasonable prices
  • 24/7 Customer Support
  • Get superb grades consistently

Get Professional Assignment Help Cheaply

Buy Custom Essay

Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?

Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.

Why Choose Our Academic Writing Service?

  • Plagiarism free papers
  • Timely delivery
  • Any deadline
  • Skilled, Experienced Native English Writers
  • Subject-relevant academic writer
  • Adherence to paper instructions
  • Ability to tackle bulk assignments
  • Reasonable prices
  • 24/7 Customer Support
  • Get superb grades consistently
 

Online Academic Help With Different Subjects

Literature

Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.

Finance

Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.

Computer science

Computer science is a tough subject. Fortunately, our computer science experts are up to the match. No need to stress and have sleepless nights. Our academic writers will tackle all your computer science assignments and deliver them on time. Let us handle all your python, java, ruby, JavaScript, php , C+ assignments!

Psychology

While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.

Engineering

Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.

Nursing

In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.

Sociology

Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.

Business

We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!

Statistics

We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.

Law

Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.

What discipline/subjects do you deal in?

We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.

Are your writers competent enough to handle my paper?

Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.

What if I don’t like the paper?

There is a very low likelihood that you won’t like the paper.

Reasons being:

  • When assigning your order, we match the paper’s discipline with the writer’s field/specialization. Since all our writers are graduates, we match the paper’s subject with the field the writer studied. For instance, if it’s a nursing paper, only a nursing graduate and writer will handle it. Furthermore, all our writers have academic writing experience and top-notch research skills.
  • We have a quality assurance that reviews the paper before it gets to you. As such, we ensure that you get a paper that meets the required standard and will most definitely make the grade.

In the event that you don’t like your paper:

  • The writer will revise the paper up to your pleasing. You have unlimited revisions. You simply need to highlight what specifically you don’t like about the paper, and the writer will make the amendments. The paper will be revised until you are satisfied. Revisions are free of charge
  • We will have a different writer write the paper from scratch.
  • Last resort, if the above does not work, we will refund your money.

Will the professor find out I didn’t write the paper myself?

Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.

What if the paper is plagiarized?

We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.

When will I get my paper?

You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.

Will anyone find out that I used your services?

We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.

How our Assignment  Help Service Works

1.      Place an order

You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.

2.      Pay for the order

Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.

3.      Track the progress

You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.

4.      Download the paper

The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.

smile and order essaysmile and order essay PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET A PERFECT SCORE!!!

order custom essay paper