LOOSE-LEAF Advanced Financial Accounting with Connect
11th Edition
ISBN: 9781259605192
Author: Theodore E. Christensen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 11.13E
a.
To determine
Foreign exchange rate: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e., direct exchange rate and indirect exchange rate.
Foreign exchange gain or loss: Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
Forward contract: It is the contract between the purchase and the seller where they agreed to buy or sell an asset at a fixed price in the future on a specific date.
The recording of the
b.
To determine
Foreign exchange rate: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e., direct exchange rate and indirect exchange rate.
Foreign exchange gain or loss: Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
Forward contract: It is the contract between the purchase and the seller where they agreed to buy or sell an asset at a fixed price in the future on a specific date.
The effect on net income of A company if forward contract is made or if forward contract is not made.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Alman Company sold pharmaceuticals to a Swedish company for 200,000 kronor (SKr) on April 20, with settlement to be in 60 days.
On the same date, Alman entered into a 60-day forward contract to sell 200,000 SKr at a forward rate of 1 SKr= $0.167 in order to
manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were
Mc
Graw
Mill
7
April 20
June 19
Required:
a. Prepare all necessary entries related to the foreign transaction and the forward contract. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field.)
Skr 1
<-50.170
SKr 1 $0.165
View transaction list
Journal entry worksheet
<
1
2
Record the sales on account.
3 4 5 6 7
Note: Enter debits before credits.
Note: Enter debits before credits.
Date
April 20
Record entry
Effects on net income
General Journal
Clear entry
Debit
Credit
View general journal
D
b. What is the effect on net income of Alman's use of the forward…
Foreign currency hedge, firm purchase commitment.
On October 2, 2016, Flx, a US company, entered into a forward contract to purcahse 50,000 euros for delivery in 180 days at a rate of $0.6350. The forward contract is a derivative instrument hedging an identifiable foreign currency purchase commitment for inventory as defined in ASC Topic 815. The spot rate for euros on October 2, 2016 was $0.6250. Spot rates and forward rates for euros on December 31, 2016 are as follows:
December 31, 2016 March 31, 2017
Spot Rate $0.6390 $0.6560
Forward Rates
30-day futures $0.6410 $0.65750
90-day futures $0.6420 $0.6615
180-day futures $0.6450 $0.6680
Required: Prepare Journal Entries
1. Record the forward contract on…
Forward exchange contract designated as a fair value hedge of a foreign-currency-denominated accounts payable, strengthening $US
On October 20, 2018, our company purchased from a company located in Slovenia 100,000 units of a product at a purchase price of €7.00 per unit. Our company is required to pay for the merchandise in Euros (€). The exchange rate on the date of purchase is $1.48:€1, and the due date for our payment is January 20, 2019. To mitigate the risk of exchange rate fluctuations between the purchase date and the payment date, on October 20, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to buy €700,000 on January 20, 2019, while we lock in the $US we will pay for the Euros on that date at the forward rate of $1.45:€1 (i.e., the forward rate on October 20, 2018, for settlement on January 20, 2019). Assume this derivative qualifies as a fair value hedge, and our company’s functional currency and reporting…
Chapter 11 Solutions
LOOSE-LEAF Advanced Financial Accounting with Connect
Ch. 11 - Prob. 11.1QCh. 11 - Prob. 11.2QCh. 11 - The U.S. dollar strengthened against the European...Ch. 11 - Prob. 11.4QCh. 11 - Prob. 11.5QCh. 11 - How are assets and liabilities denominated in a...Ch. 11 - Prob. 11.7QCh. 11 - Prob. 11.8QCh. 11 - Prob. 11.9QCh. 11 - Distinguish between an exposed net asset position...
Ch. 11 - Prob. 11.11QCh. 11 - Prob. 11.12QCh. 11 - Effects of Changing Exchange Rates Analysis Since...Ch. 11 - Prob. 11.2CCh. 11 - Prob. 11.5CCh. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Basic Understanding of Foreign Exposure The...Ch. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Adjusting Entries for Foreign Currency Balances...Ch. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11.1ECh. 11 - Prob. 11.11.2ECh. 11 - Prob. 11.11.3ECh. 11 - Prob. 11.11.4ECh. 11 - Prob. 11.11.5ECh. 11 - Prob. 11.11.6ECh. 11 - Prob. 11.11.7ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14.1ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.3ECh. 11 - Prob. 11.14.4ECh. 11 - Prob. 11.14.5ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.7ECh. 11 - Prob. 11.15ECh. 11 - Prob. 11.16AECh. 11 - Prob. 11.17ECh. 11 - Prob. 11.18ECh. 11 - Prob. 11.19.1ECh. 11 - Prob. 11.19.2ECh. 11 - Prob. 11.19.3ECh. 11 - Prob. 11.19.4ECh. 11 - Prob. 11.19.5ECh. 11 - Prob. 11.20.1PCh. 11 - Prob. 11.20.2PCh. 11 - Prob. 11.20.3PCh. 11 - Prob. 11.20.4PCh. 11 - Prob. 11.20.5PCh. 11 - Foreign Sales Tex Hardware sells many of its...Ch. 11 - Prob. 11.22PCh. 11 - Prob. 11.23APCh. 11 - Prob. 11.24.1PCh. 11 - Prob. 11.24.2PCh. 11 - Prob. 11.25PCh. 11 - Prob. 11.26PCh. 11 - Prob. 11.27B.1PCh. 11 - Prob. 11.27B.2PCh. 11 - Prob. 11.27B.3PCh. 11 - Prob. 11.27B.4PCh. 11 - Prob. 11.27B.5PCh. 11 - Prob. 11.27B.6PCh. 11 - Prob. 11.28BPCh. 11 - Prob. 11.29BPCh. 11 - Matching Key Terms Match the items in the lefthand...Ch. 11 - Prob. 11.31P
Knowledge Booster
Similar questions
- The spot foreign exchange rate for the US dollar is 0.69056 Euros. Yourcompany agrees to pay a bank 63,694 Euros in 3 months in exchange for 100,000US dollars. This is a foreign currency forward contract. No cash is exchanged upfront. Give the underlying asset, the maturity date, and the forward rate (for theUS dollar). Compare to the spot forward rate. Concludearrow_forwardOn September 1, 2019 Philips corporation sold merchandise to a foreign customer for 300,000 Brazilian real with payment to be received on March 1, 2020. At the date of sale, Philips entered into a six month forward contract to sell 300,000 reals. The forward contract was properly designated as a fair value hedge. The following exchange rates apply: Date Spot rate Forward rate (to March 1, 2020) September 1, 2019 $0.46 $ 0.49 December 31, 2019 0.50 0.52 March 1, 2020 0.54 Philips’ incremental borrowing rate is 12%. The present value factor at an annual interest rate of 12% is .9610. What journal entry should Philips prepare to record the value of the forward contract on December…arrow_forwardMyway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9, with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: January 1 (1 C$ = $0945); March 1 (1C$ = $0.930). Based on the preceding information, the entry to revalue foreign currency payable to current U.S. dollar value on March 1 will have: A. a credit to Foreign Currency Transaction Gain for $1,500. B. a debit to Foreign Currency Transaction Loss for $2,500. C. a debit to Foreign Currency Transaction Loss for $1,500. D. a credit to Foreign Currency Transaction Gain for $1,000.arrow_forward
- Melton Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9, with settlement to be in 60 days. On the same date, Melton entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $0.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: January 1, 20X9 March 1, 20X9 1 C$=$0.945 1 C$=$0.930 Based on the preceding information, the entry to revalue foreign currency payable to current U.S. dollar value on March 1 will have: O a credit to Foreign Currency Transaction Gain for $1,000. O a credit to Foreign Currency Transaction Gain for $1,500. O a debit to Foreign Currency Transaction Loss for $1,500. O a debit to Foreign Currency Transaction Loss for $2,500.arrow_forwardOn November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 180,000 FCUS with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 180,000 FCUS. The company properly designates the forward contract as a cash flow hedge of a foreign currency receivable. The following exchange rates apply: Forward Rate Spot Rate $0.29 Date (to April 30, 2018) $ 0.28 November 1, 2017 December 31, 2017 April 30, 2018 0.27 0.25 0.26 N/A Bernard's incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610. a. Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract. b. What is the impact on net income in 2017? C. What is the impact on net income in 2018? Complete this question by entering your answers in the tabs below. Req A Req B and C Prepare all…arrow_forwardAn investor enters into a short forward contract to sell ¥50,000 for U.S. dollars at an exchange rate of ¥110/$1. a) How much does the investor gain or lose if the exchange rate at the end of the contract is ¥108/$1? b) Did ¥ appreciate or depreciate against $ in part a)?arrow_forward
- 1. On September 1, 20X1, Cano & Company, a U.S. corporation, sold merchandise to a foreign firm for 250,000 euros. Terms of the sale require payment in euros on February 1, 20X2. On September 1, 20X1, the spot exchange rate was $1.30 per euro. At Cano’s year-end on December 31, 20X1, the spot rate was $1.28, but the rate increased to $1.33 by February 1, 20X2, when payment was received. Required: What foreign currency transaction gain or loss should be recorded in 20X1? What foreign currency transaction gain or loss should be recorded in 20X2? Amount Gain / Loss 1. Foreign currency transaction gain (loss) 20X1 2. Foreign currency transaction gain (loss) - 20X2arrow_forwardOn 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)arrow_forwardOn March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.09 per Norwegian krone, Derby enters into a forward contract to purchase 6 02,500 Norwegian kroner at a three-month forward rate of $0.10. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.098 per Norwegian krone, Derby orders and receives the merchandise, paying 602,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss?arrow_forward
- Forward exchange contract designated as a fair value hedge of a foreign-currency-denominated firm commitment to sell inventory, weakening SUS Our U.S.-based company enters into a "firm commitment" with Malta-based retailer on November 10, 2018. The firm commitment requires our company to sell 70,000 units of an inventory item costing €9.00 each to the Maltese company. Our company is contractually committed to ship the inventory (i.e., title transfers) on February 10, 2019, with payment in Euros on the same date. Our company does recurring business with the Maltese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 10, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 10, 2019) to mitigate the risk of exchange rate fluctuation. Our company's functional currency is the U.S. dollar and our forward exchange contract qualifies as a fair value hedge. The…arrow_forwardOn November 1, 2021, Americo, Corporation purchased wine on credit from Venezia Company for €800,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2022. On November 1, 2021, Americo, Corporation also entered a 120-day forward contract to purchase €800,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT FORWARD11/1/2021 $ 1.09 $ 1.06 (120 days) 12/31/2021 $ 1.05 $ 1.11 (60 days) 2/28/2022 $ 1.12 JOURNAL ENTRIES ON NOVEMBER 1, 2021 (TRANSACTION DATE): Foreign Currency Transaction YEAR-END OF DECEMBER 31, 2021: JOURNAL ENTRIES:Foreign Currency Transaction FINANCIAL STATEMENT PRESENTATION INCOME STATEMENT JOURNAL ENTRIES ON FEBRUARY 28, 2022 (SETTLEMENT DATE):arrow_forwardOn November 1, 2020, Americo, Corporation purchased wine on credit from 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 purchase €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 2/28/2021 $ 1.19 1.24 (120 days) 1.17 (60 days) 1.18 $arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning