Duck Corporation "forecasted" on December 21, 2020 to sell a machine to a company in Italy. The selling price was 500,000 euros, to be paid on March 21, 2021. To hedge against fluctuations in the exchange rate, Duck entered into a forward contract on Dec. 21, 2020 to sell 500,000 euros on March 21, 2021, the agreed date of machine delivery, for $1.227 per euro. The company ends its fiscal year on December 31. The following exchange rates were quoted: Forward Rate Date Spot Rate (Delivery on 3/21/2020) 12/21/2020 1.228 1.227 12/31/2020 1.222 1.221 3/21/2021 1.225 Required: A. Prepare all journal entries relative to the above event on December 21, 2020. B. Prepare all journal entries relative to the above event on December 31, 2020. C. Prepare all journal entries relative to the above event on March 21, 2021.

Duck Corporation "forecasted" on December 21, 2020 to sell a machine to a company in Italy. The selling price was 500,000 euros, to be paid on March 21, 2021. To hedge against fluctuations in the exchange rate, Duck entered into a forward contract on Dec. 21, 2020 to sell 500,000 euros on March 21, 2021, the agreed date of machine delivery, for $1.227 per euro. The company ends its fiscal year on December 31. The following exchange rates were quoted: Forward Rate Date Spot Rate (Delivery on 3/21/2020) 12/21/2020 1.228 1.227 12/31/2020 1.222 1.221 3/21/2021 1.225 Required: A. Prepare all journal entries relative to the above event on December 21, 2020. B. Prepare all journal entries relative to the above event on December 31, 2020. C. Prepare all journal entries relative to the above event on March 21, 2021.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

On 1 November 2022, Long Ltd enters a contract to buy inventory from an overseas supplier, with the inventory to be delivered in six months' time. A sum of US$1 000000 is payable on delivery of the inventory. Long Ltd does not want to be exposed to potential losses associated with changes in the exchange rate. As a result, Long Ltd takes out a forward rate contract with Board Bank to purchase US$1 000000 in six months' time at an exchange rate of A$1.00 = US$0.70. REQUIRED Explain who now bears the risks associated with changes in the exchange rate, and calculate how much Long Ltd will ultimately pay for the invento
On December 1, 2020, Beta Company, a U.S. electronics company purchased equipment from a Brazilian company for 900,000 Brazilian Real. The account is to be sottled on January 31, 2021. To hedge against fluctuations in the exchange rate, On December 1, 2020 Beta Company entered into a forward contract to buy the 900,000 Brazilan Real on January 31, 2021 for $0.5453. Beta Company'a year-end is December 31and Soot.rates and the.forward.cates for the Brazilan Beal were as follows: Spot Rate Forward Rate (Delivery on January 31, 2021) December 1, 2020 $0.5451 December 31. 2020 January 31,2021 $0.5453 $0.5426 $0.5425 $0.5396 Required: Prepare the Journal entries to record the transactions, adjust the accounts on December 31, 2020 and settle the payable and forward contract on January 31,2021.
On October 1, 2024, Wildhorse Corporation ordered some equipment from a supplier for 322,000 euros. Delivery and payment are to occur on November 15, 2024. The spot rates on October 1 and November 15, 2024, are $1.20 and $1.30, respectively. (a) - Your answer is partially correct. Assume that Wildhorse entered into a forward contract on October 1, 2024, to hedge the firm commitment. The forward rates for euros for November 15 delivery were October 1 November 15 $1.23 $1.30 Furthermore, assume the equipment was purchased and paid for on November 15. Prepare all journal entries needed to record and settle the hedge and to record the purchase of the equipment. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.)
Assume now is 1st September 2020. Hillview Sdn. Bhd. (Hillview) has exported its frozen seafood amounting to €50,000 to Germany is a member of the European Union. The receipt is expected to fall due in two months’ time. Due to uncertainty of the financial market, the finance manager wishes to hedge the risk exposure faced by the company using forward contract. Foreign exchange rates: MYR/EUR(€) Spot 4.1250 - 4.1259 2 months forward 4.2250 - 4.2258 Required: i)The company intends to hedge against the foreign exchange risk of the above transaction using a two-months forward. Calculate the expected amount in Ringgit Malaysia (RM) that Hillview is expected to receive in due course. ii)Differentiate between a spot market and futures market.
On November 1, 2020, Joey Company contracts to purchase special order goods from New York company. Their manufacture and delivery will take place in 120 days (on March 1, 2021 ). The contract price is $1,200, to be paid by August 1, 2020 which is 150 days after delivery. On November 1, 2020, Joey hedges its foreign currency payable commitment with a forward exchange contract – fair value hedge to receive $1,200 in 270 days (the 120 days delivery plus 150 days of credit period). The forward rate for a 270-day forward contract is P41.25 to 1$. The purpose of this 270-day forward exchange contract is two-fold. First, for the 120 days from November 1, 2020 until March 1, 2021, the forward exchange contract is a hedge of an identifiable foreign currency firm commitment. For the 150-day period from March 1, 2021 until August 1, 2021, the forward exchange contract is a hedge of a foreign currency exposed net liability position. The following exchange rates at various dates are as follows…
On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 130,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 130,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate (to April 30, 2021) November 1, 2020 $ 0.24 $ 0.225 December 31, 2020 0.23 0.200 April 30, 2021 0.21 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 130,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021. Prepare all journal entries, including…
Brexylite plc is due to pay €1,750,000 to its European suppliers in 3 months’ time. The financial manager has decided to hedge the currency risk of this account payable. The following information has been provided by the company’s bank: Spot rate (£ per €): 1·1410 ± 0·0022 3 months forward rate (£ per €): 1·1574 ± 0·0041 6 months forward rate (£ per €) 1.1582 ± 0.0032 Calculate the expected (£) Stirling payment if the 3 months forward market is used
Maplewood Inc. sells lumber to a number of clients around the world. On December 1, 2020 the company shipped some lumber to a client in the U.S. The selling price was established at US$600,000 with payment to be received on March 1, 2021. On December 3, 2020 Maplewood Inc. entered into a hedge by way of a forward contract with a Canadian Bank at the 90-day forward rate of US$1 = CDN$1.275. Hedge accounting is not applied. Maplewood Inc. received the payment from its American client on March 1, 2021. The company's year-end is on December 31. The two-month forward rate for US dollars was CDN$1.255 on that date. Selected spot rates were as follows: December 1, 2020: US$1 = CDN$1.2355 December 3, 2020: US$1 = CDN$1.2355 December 31, 2020: US$1 = CDN$1.2455 March 1, 2021: US$1 = CDN$1.2480 Required: Part a) Prepare a partial Balance Sheet for Maplewood Inc. on December 31, 2020. Part b) Prepare the journal entries on March 1, 2021.
On Dec 1, 2015, XYZ (a US firm) entered into a transaction to import raw materials from EU country. The account is to be settled Mar 1, 2016 with the payment of 50,000 euros. The spot rate for euros on Dec 1 was $1.4/euro and on Mar 1 was $1.44/euro. If XYZ does not hedge the pavable, raw materials will be recorded on the books on March 1, 2016 at: O a. $72,000 Ob. $70,000 O c. 50,000 euros d. None ofthe above
Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with payment of 16,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on December 1, 2020, to sell 16,000 dinars on March 1, 2021. The forward points on the forward contract are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows: Date Spot Rate Forward Rate(to March 1, 2021) December 1, 2020 $ 3.40 $ 3.475 December 31, 2020 3.50 3.600 March 1, 2021 3.65 N/A Icebreaker must close its books and prepare financial statements at December 31. a-1. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars. a-2. What is the impact on…
On January 1, 2021, Enigma Company sold an equipment costing P500,000 which had a carrying amount of P350,000, receiving a P125,000 down payment and, as additional consideration, a P400,000 noninterest bearing note due on January 1, 2024. There was no established exchange price for the equipment, and the note had no ready market. The prevailing rate of interest for a note of this type at January 1, 2021 was 12%. The present value of 1 at 12% for three periods is 0.7118. Required: Prepare journal entries for 2021, 2022, 2023 and 2024.
On November 1, 2020, Americo, Corporation sold wine on credit to Venezia Company for €800,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2021. On November 1, 2020, Americo, Corporation also entered a 120-day forward contract to sell €800,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT FORWARD 11/1/2020 $ 1.22 $ 12/31/2020 $ 1.18 $ 2/28/2021 $ 1.19 1.24 (120 days) 1.17 (60 days)