Lawrence Company, a U.S. company, ordered parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $0.025 per baht. A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $0.027. The forward contract is properly designated as a fair value hedge of the 1,000,000 baht firm commitment. On August 7, when the parts are received, the spot rate is $0.028. What is the amount of accounts payable that will be paid at this date?
A) $20,000.
B) $20,100.
C) $25,000.
D) $27,000.
E) $28,000.

Question

Quizplus · Accepted Answer

The accounts payable is recorded at the forward contract rate of $0.027 per baht, resulting in $27,000 (1,000,000 bahts x $0.027).