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 |
||||
December 1, 2017 |
$ |
3.40 |
$ |
3.475 |
||
December 31, 2017 |
3.50 |
3.600 |
||||
March 1, 2018 |
3.65 |
N/A |
||||
Brandlin's incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at December 31.
Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars.
1
Record the sales and foreign currency account receivable.
2
Record the forward contract.
3
Record the entry for changes in the exchange rate.
4
Record the change in the fair value of the forward contract.
5
Record the gain or loss on the forward contract.
6
Record the allocation of the premium or discount.
7
Record the entry for changes in the exchange rate.
8
Record the entry to adjust the carrying value of the forward contract to its current fair value.
9
Record the gain or loss on the forward contract.
10
Record the allocation of the premium or discount.
11
Record the receipt of korunas from the foreign customer.
12
Record the settlement of the forward contract.
ANSWER
No. |
Date |
General Journal |
Debit |
Credit |
1 |
12/1/17 |
Accounts receivable (K) |
54400 |
|
Sales (16000*3.40) |
54400 |
|||
(Record the purchase of materials) |
||||
2 |
No journal entry required |
|||
No journal entry required |
||||
(Record the forward contract.) |
||||
3 |
12/31/17 |
Accounts receivable (K) |
1600 |
|
Foreign exchange gain (16000*(3.50-3.40)) |
1600 |
|||
(Record the entry for changes in the exchange rate.) |
||||
4 |
AOCI |
1961 |
||
Forward contract (16000*(3.475-3.6000))*0.9803 |
1961 |
|||
(Record the change in the fair value of the forward contract.) |
||||
5 |
Loss on forward contract |
1600 |
||
AOCI |
1600 |
|||
(Record the gain or loss on the forward contract.) |
||||
6 |
AOCI |
400 |
||
Premium revenue (16000*(3.475-3.400))*1/3 |
400 |
|||
(Record the allocation of the premium or discount.) |
||||
7 |
3/1/18 |
Accounts receivable (K) |
2400 |
|
Foreign exchange gain (16000*(3.65-3.50)) |
2400 |
|||
(Record the entry for changes in the exchange rate.) |
||||
8 |
AOCI |
839 |
||
Forward contract (16000*(3.65-3.475))-1961 |
839 |
|||
(Record the entry to adjust the carrying value of the forward contract to its current fair value.) |
||||
9 |
Loss on forward contract |
2400 |
||
AOCI |
2400 |
|||
(Record the gain or loss on the forward contract.) |
||||
10 |
AOCI |
800 |
||
Premium revenue (16000*(3.475-3.400))*2/3 |
800 |
|||
(Record the allocation of the premium or discount.) |
||||
11 |
Foreign currency (K) |
58400 |
||
Accounts receivable (K) (16000*3.65) |
58400 |
|||
(Record the receipt of korunas from the foreign customer.) |
||||
12 |
Cash (16000*3.475) |
55600 |
||
Forward contract |
2800 |
|||
Foreign currency (K) |
58400 |
|||
(Record settlement of the forward contract.) |
Part B-2
Impact on 2017 income:
Sales |
54400 |
Foreign Exchange Gain |
1600 |
Loss on Forward Contract |
(1961) |
Total |
54039 |
Part B-3
Impact on 2018 income:
Foreign Exchange Gain |
2400 |
Loss on Forward Contract |
(839) |
Total |
1561 |
Part B-4
Impact on net income over both periods: $54039 + $1561 = $55600; equal to cash inflow
_____________________________________________
If you have any query or any Explanation please ask me in the comment box, i am here to helps you.please give me positive rating.
*****************THANK YOU**************
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with...
31. 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 December 1, 2017 December 31, 2017 March 1, 2018 $2.70 2.80 2.95 Forward Rate (to March 1, 2018) $2.775...
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 25,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 25,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Date December 1, 2017 December 31, 2017 March 1, 2018 Spot Rate $ 4.30 4.40 4.55 Forward Rate (to March 1, 2018) $...
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 29,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 29,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Spot Rate $ 4.70 Date December 1, 2017 December 31, 2017 March 1, 2018 Forward Rate (to March 1, 2018) $ 4.775 4.900...
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017 with payment of 23,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 23,000 korunas on March 1, 2018 Relevant exchange rates for the koruna on various dates are as follows: Spot Rate $ 4.10 Date December 1, 2017 December 31, 2017 March 1, 2018 Fonard Rate (to March 1, 2018) $ 4.175 4.389...
Brandlin Company of Anaheim, California, purchases materials from a foreign supplier on December 1, 2017, with payment of 10,000 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 10,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Date December 1, 2017 December 31,...
Brandlin Company of Anahelm, Callfornla, sells parts to a foreign customer on December 1, 2017, with payment of 14,000 korunas to be recelved on March 1, 2018. Brandlin enters Into a forward contract on December 1, 2017, to sell 14,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on varlous dates are as follows: Forward Rate (to March 1, 2818) 3.275 3.408 Spot Rate Date December 1, 2017 December 31, 2817 March 1, 2818 $ 3.28 3.38...
Brandiin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 23,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 23,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Date December 1, 2017 December 31, 2017 March 1, 2018 Spot Rate $ 4.10 4.20 4.35 Forward Rate (to March 1, 2018) $4.175...
Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 31,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 31,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Date December 1, 2017 December 31, 2017 March 1, 2018 Forward Rate Spot Rate (to March 1, 2018) $ 4.90 $4.975 5.00 5.100...
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...
questions i cant figure out?? Brandlin Company of Anaheim, California, purchases materials from a foreign supplier on December 1, 2017 with payment of 17.000 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 17.000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Date...