Question

Meisner Co. ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle. A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle. On June 12, when the parts were received and payment was made, the spot rate was $.28 per stickle. At what amount should inventory be reported?

Answer 1

$28,000

Step-by-step explanation:

The computation of the reported inventory is shown below:

= Spot rate per stickle × cost of ordering parts

= $0.28 × $100,000

= $28,000

For recording the inventory at the fair amount we consider the spot rate and then multiply the ordering parts and ignore the forward rate as it is not relevant for the computation part.