Shelton Corporation of New York is an international dealer in jewelry and engages in numerous import and export activities. Shelton’s receivables and payables in foreign currency units before year-end adjustments on December 31, 2011, are summarized as follows:
Foreign Currency | Currency Units | Rate on Date of Transaction | Per Books in U.S. Dollars | Current Rate on December 31, 2011 |
Accounts Receivable Denominated in Foreign Currency | ||||
British pounds | 100,000 | $1.6500 | $165,000 | $1.6600 |
Euros | 250,000 | $0.6600 | 165,000 | $0.6700 |
Swedish krona | 160,000 | $0.6600 | 105,600 | $0.6400 |
Japanese yen | 2,000,000 | $0.0075 | 15,000 | $0.0076 |
|
|
| $450,600 |
|
Accounts Payable Denominated in Foreign Currency | ||||
Canadian dollars | 150,000 | $0.7000 | $105,000 | $0.6900 |
Mexican pesos | 220,000 | $0.1300 | 28,600 | $0.1350 |
Japanese yen | 4,500,000 | $0.0074 | 33,300 | $0.0076 |
|
|
| $166,900 |
|
REQUIRED
1. Determine the amount at which the receivables and payables should be reported in Shelton’s December 31, 2011, balance sheet.
2. Calculate individual gains and losses on each of the receivables and payables and the net exchange gain that should appear in Shelton’s 2011 income statement.
3. When the sale occurs, assume that Shelton wants to hedge its exposure to amounts denominated in euros. Should it buy or sell euros for future delivery? In what amount or amounts?
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