Sale with Forward Exchange Contract
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
April 20 | SKr 1 = | $0.170 |
June 19 | SKr 1 = | 0.165 |
Required
a.Record all necessary entries related to the foreign transaction and the forward contract.
b.Compare the effects on net income of Alman’s use of the forward exchange contract versus the effects if Alman had not used a forward exchange contract.
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