Homework Answers
Part A-1
|
No. |
Date |
General Journal |
Debit |
Credit |
|
1 |
12/1/17 |
Accounts receivable (K) |
151900 |
|
|
Sales (31000*4.90) |
151900 |
|||
|
(Record the sales and foreign currency account receivable) |
||||
|
2 |
No journal entry required |
|||
|
No journal entry required |
||||
|
(Record the forward contract.) |
||||
|
3 |
12/31/17 |
Accounts receivable (K) |
3100 |
|
|
Foreign exchange gain (31000*(5.00-4.90)) |
3100 |
|||
|
(Record the entry for changes in the exchange rate.) |
||||
|
4 |
AOCI |
3818 |
||
|
Forward contract (31000*(4.975-5.100))*0.9852 |
3818 |
|||
|
(Record the change in the fair value of the forward contract.) |
||||
|
5 |
Loss on forward contract |
3100 |
||
|
AOCI |
3100 |
|||
|
(Record the gain or loss on the forward contract.) |
||||
|
6 |
AOCI |
775 |
||
|
Premium revenue (31000*(4.975-4.900))*1/3 |
775 |
|||
|
(Record the allocation of the premium or discount.) |
||||
|
7 |
3/1/18 |
Accounts receivable (K) |
4650 |
|
|
Foreign exchange gain (31000*(5.15-5.00)) |
4650 |
|||
|
(Record the entry for changes in the exchange rate.) |
||||
|
8 |
AOCI |
1607 |
||
|
Forward contract (31000*(5.15-4.975))-3818 |
1607 |
|||
|
(Record the entry to adjust the carrying value of the forward contract to its current fair value.) |
||||
|
9 |
Loss on forward contract |
4650 |
||
|
AOCI |
4650 |
|||
|
(Record the gain or loss on the forward contract.) |
||||
|
10 |
AOCI |
1550 |
||
|
Premium revenue (31000*(4.975-4.900))*2/3 |
1550 |
|||
|
(Record the allocation of the premium or discount.) |
||||
|
11 |
Foreign currency (K) |
159650 |
||
|
Accounts receivable (K) (31000*5.15) |
159650 |
|||
|
(Record the receipt of korunas from the foreign customer.) |
||||
|
12 |
Cash (31000*4.975) |
154225 |
||
|
Forward contract |
5425 |
|||
|
Foreign currency (K) |
159650 |
|||
|
(Record settlement of the forward contract.) |
Part A-2
Impact on 2017 income:
|
Sales |
151900 |
|
Foreign Exchange Gain |
3100 |
|
Loss on Forward Contract |
(3100) |
|
Premium revenue |
775 |
|
Total |
152675 |
Part A-3
Impact on 2018 income:
|
Foreign Exchange Gain |
4650 |
|
Loss on Forward Contract |
(4650) |
|
Premium revenue |
1550 |
|
Total |
1550 |
Part A-4
Impact on net income over both periods: $152675 + $1550 = $154225; equal to cash inflow
Part B-1
|
No. |
Date |
General Journal |
Debit |
Credit |
|
1 |
12/1/17 |
Accounts receivable (K) |
151900 |
|
|
Sales (31000*4.90) |
151900 |
|||
|
(Record the sales and foreign currency account receivable) |
||||
|
2 |
No journal entry required |
|||
|
No journal entry required |
||||
|
(Record the forward contract.) |
||||
|
3 |
12/31/17 |
Accounts receivable (K) |
3100 |
|
|
Foreign exchange gain (31000*(5.00-4.90)) |
3100 |
|||
|
(Record the entry for changes in the exchange rate.) |
||||
|
4 |
No journal entry required |
|||
|
No journal entry required |
||||
|
(Record the change in the fair value of the forward contract.) |
||||
|
5 |
Loss on forward contract |
3818 |
||
|
Forward Contract |
3818 |
|||
|
(Record the gain or loss on the forward contract.) |
||||
|
6 |
No journal entry required |
|||
|
No journal entry required |
||||
|
(Record the allocation of the premium or discount.) |
||||
|
7 |
3/1/18 |
Accounts receivable (K) |
4650 |
|
|
Foreign exchange gain (31000*(5.15 -5.00)) |
4650 |
|||
|
(Record the entry for changes in the exchange rate.) |
||||
|
8 |
No journal entry required |
|||
|
No journal entry required |
||||
|
(Record the entry to adjust the carrying value of the forward contract to its current fair value.) |
||||
|
9 |
Loss on forward contract |
1607 |
||
|
Forward Contract |
1607 |
|||
|
(Record the gain or loss on the forward contract.) |
||||
|
10 |
No journal entry required |
|||
|
No journal entry required |
||||
|
(Record the allocation of the premium or discount.) |
||||
|
11 |
Foreign currency (K) |
159650 |
||
|
Accounts receivable (K) (31000*5.15) |
159650 |
|||
|
(Record settlement of the forward contract.) |
||||
|
12 |
Cash (31000*4.975) |
154225 |
||
|
Forward contract |
5425 |
|||
|
Foreign currency (K) |
159650 |
|||
|
(Record the payment of korunas to the foreign supplier.) |
Part B-2
Impact on 2017 income:
|
Sales |
151900 |
|
Foreign Exchange Gain |
3100 |
|
Loss on Forward Contract |
(3818) |
|
Total |
151182 |
Part B-3
Impact on 2018 income:
|
Foreign Exchange Gain |
4650 |
|
Loss on Forward Contract |
(1607) |
|
Total |
3043 |
Part B-4
Impact on net income over both periods: $151182 + $3043 = $154225; equal to cash inflow
Add Answer to:
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immediately and recognized as cost of goods sold at the date of
purchase. On December 1, 2017, Brandlin enters into a forward
contract to purchase 16,000 korunas on March 1, 2018. Relevant
exchange rates for the koruna on various dates are as follows:
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foreign customer on December 1, 2017, with payment of 16,000
korunas to be received on March 1, 2018. Brandlin enters into a
forward contract on December 1, 2017, to sell 16,000 korunas on
March 1, 2018. Relevant exchange rates for the koruna on various
dates are as follows:
Date
Spot Rate
Forward Rate
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$
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Brandlin Company of Anaheim, California, purchases materials
from a foreign supplier on December 1, 2017, with payment of 16,000
korunas to be made on March 1, 2018. The materials are consumed
immediately and recognized as cost of goods sold at the date of
purchase. On December 1, 2017, Brandlin enters into a forward
contract to purchase 16,000 korunas on March 1, 2018. Relevant
exchange rates for the koruna on various dates are as follows:
Date
Spot Rate
Forward Rate
(to...
Brandlin Company of Anaheim, California, sells parts to a
foreign customer on December 1, 2017, with payment of 16,000
korunas to be received on March 1, 2018. Brandlin enters into a
forward contract on December 1, 2017, to sell 16,000 korunas on
March 1, 2018. Relevant exchange rates for the koruna on various
dates are as follows:
Date
Spot Rate
Forward Rate
(to March 1, 2018)
December 1, 2017
$
3.40
$
3.475
December 31, 2017
3.50
3.600
March 1,...
Based on past experience, Leickner Company expects to purchase raw materials from a foreign supplier at a cost of 1,000,000 marks on March 15, 2018. To hedge this forecasted transaction, the company acquires a three-month call option to purchase 1,000,000 marks on December 15, 2017. Leickner selects a strike price of $0.59 per mark, paying a premium of $0.001 per unit, when the spot rate is $0.59. The spot rate increases to $0.598 at December 31, 2017, causing the fair...
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