Question

Problem 4. On November 1, 2017, US Frigatebird Company sold an airplane worth S1 million Australian dollars to Australian company Heron Inc., to be paid on February 1, 2018 in Sydney. In order to hedge foreign exchange, Frigatebird entered into a 90 day forward contract on the same day for the amount of the sale at .73 US per Australian dollar. The relevant exchange rates are of US dollars per Australian dollar: Forward Rate Date Spot Rate (Delivery on 2/1/2018) Nov. 1, 2017 $0.71 $0.73 Dec. 31, 2017 0.75 0.76 Feb. 1. 2018 0.74 March 31, 2018 0.67 Instructions 1. What journal entry did Frigatebird record on November 1, 2017? 2. What journal entry did Frigatebird record on December 31, 2017? 3. What journal entry did Frigatebird record on February 1, 2018? 4. What journal entry did Frigatebird record on November 1, 2017, December 31, 2017, February 1, 2018, and March 31, 2018, assuming that Frigatebird purchased a put option instead for $20,000 to sell $1 million Australian dollars at 73 US per Australian dollar with an expiration date of March 31, 2018? The option is worth $3,000 on December 31, 2017?

Answer 1

Date Nov.1 1 2017 Townnau entoyo Foo Fooward contract... Particular ~ orsa Debit & credits Account Receivable AK DOT 710,000+ to Revanu Al 720,000 Centry for sales at the | seor oare n Nov. 1, 2017) 40000 1:40000 Dec.31 Account Receivable Aic Dr - 2014. to Fooiegn Exchange Alc| centry for sain due to it Foorego Exchange oate Fluctuatims 2

Dec.3) | Forwaid .contract Aic 080 30,000; OT 2017 to Foojego exchange -30,000 coain dute to change In fooward l palce a malmo 4900 Tor: Ooclar the date of O rang 1 Balence Sheet rook 007_oÀ PLOIT Feb 1 cash AC DO. 0 7 40000 bicol 2018 Fodies Exchange Alcon Milta 10,000 Ito accounts Recivable Wit 089 750000 (entay on the deve of 3 amount Recived from Austdailian Bwrdo and so mo Convertit in set cate | | 8 loss Recorded ) : Diabo Feb. i I Fadwand contract Aic og 20,000| 4091 OD1 2018 to forego Exchange AC091603 / 20,000 I centay for gain due ha sot tortor to enred in forward to como contract & change in ob out usical Ispot price & Forward I price on payment ..- foundate. P or OOCH A lirical bozub Orvt to Onodi 230 volge6

- Journal entry for Put Optimic. locredit. Pauticular aniloebit is Nov. L'optim premium Ais Droico | 20000: 2012 to cash I Bank fica mais bis lentoy for poeamium Calira o #payment m putopain) 20000 DOG Fooiego El 317 hat contoy ro01@gn Exchange nic 8 1.19000_DOLI it to option AI SA 00 1 70ool Tentoo poo the Reduction of in optim vane . quod Feb 1 2018 I Same entry of payment anilinolsun! Recieve as we didsin at a tirono Forwould contract. e tobomo 200 g paren put option Alcor.no ih i 70oso croch 31 to Forien eronarse Asl normal 70000 2018 centay for Diffesercen arios between cut o excessice Al l Drico m the date of $ :imosi Expiratim of option of a singloost I NOTE: all the transactions of t Payment recieve, sales reade & at the dute of balance sheet au will be as same as in Foo word contract only Entry having forward contract will be changed other entries will be remain unchanged. 2

I hope my efforts will be fruitful to you...?