As expected, ABC receives the goods from the supplier on April 30, 2021 and pays 100,000 yuan immediately. ABC sells the imported goods in the local market in May 2021. Required: Prepare all journal entries and memoranda related to the foreign currency forward contract, purchase, and sale from November 2020 to May 2021.
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- EXCHANGE RATES Table 17.1 lists foreign exchange rates for August 30, 2018. On that day, how many dollars would be required to purchase 1,000 units of each of the following: British pounds, Canadian dollars, EMU euros, Japanese yen, Mexican pesos, and Swedish kronas?On November 1, 2023, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 310,000 yuan. Cheng expects to receive the goods on April 30, 2024, and make immediate payment. On November 1, 2023, Cheng enters a six-month forward contract to buy 310,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points excluded in assessing hedge effectiveness and amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate (to April 30, 2024) November 1, 2023 $ 0.42 $ 0.405 December 31, 2023 0.41 0.380 April 30, 2024 0.39 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2024, and pays 310,000 yuan immediately. Cheng sells the imported goods in the local market in May 2024. Required: Prepare all journal entries,…On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 1,000,000 Chinese yuan loan from a Chinese bank at an interest rate of 2 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows: Date U.S. Dollar per Chinese Yuan (CNY) September 30, 2020 $ 0.100 December 31, 2020 0.105 September 30, 2021 0.120 December 31, 2021 0.125 September 30, 2022 0.150 Prepare all journal entries related to this foreign currency borrowing. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022.
- On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 100,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 100,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate(to April 30, 2021) November 1, 2020 $ 0.21 $ 0.195 December 31, 2020 0.19 0.170 April 30, 2021 0.18 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 100,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021.…On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 1,900,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows: Date U.S. Dollar per Chinese Yuan (CNY) September 30, 2020 $ 0.190 December 31, 2020 0.195 September 30, 2021 0.210 December 31, 2021 0.215 September 30, 2022 0.240 Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022.On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 130,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 130,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate (to April 30, 2021) November 1, 2020 $ 0.24 $ 0.225 December 31, 2020 0.23 0.200 April 30, 2021 0.21 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 130,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021. Prepare all journal entries, including…
- On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 2,500,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows: Date U.S. Dollar per Chinese Yuan (CNY) September 30, 2020 $ 0.140 December 31, 2020 0.145 September 30, 2021 0.160 December 31, 2021 0.165 September 30, 2022 0.190 Prepare all journal entries related to this foreign currency borrowing.Assume now is 1st September 2020. Hillview Sdn. Bhd. (Hillview) has exported its frozen seafood amounting to €50,000 to Germany is a member of the European Union. The receipt is expected to fall due in two months’ time. Due to uncertainty of the financial market, the finance manager wishes to hedge the risk exposure faced by the company using forward contract. Foreign exchange rates: MYR/EUR(€) Spot 4.1250 - 4.1259 2 months forward 4.2250 - 4.2258 Required: i)The company intends to hedge against the foreign exchange risk of the above transaction using a two-months forward. Calculate the expected amount in Ringgit Malaysia (RM) that Hillview is expected to receive in due course. ii)Differentiate between a spot market and futures market.On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,030,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,030,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows: Date Spot Rate Forward Rate(to January 31, 2021) October 1, 2020 $ 0.26 $ 0.30 December 31, 2020 0.29 0.33 January 31, 2021 0.31 N/A Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. Prepare journal entries for the foreign currency forward contract,…
- On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,030,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,030,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows: Date Spot Rate Forward Rate(to January 31, 2021) October 1, 2020 $ 0.26 $ 0.30 December 31, 2020 0.29 0.33 January 31, 2021 0.31 N/A Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. Determine the net benefit, if any, realized by Mertag from entering…On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,000,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,000,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows: Date Spot Rate Forward Rate(to January 31, 2021) October 1, 2020 $ 0.25 $ 0.29 December 31, 2020 0.28 0.31 January 31, 2021 0.30 N/A Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. Prepare journal entries for the foreign currency forward contract,…On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,036,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,036,000 in four months (on January 31, 2021). U.S. dollar -Polish zloty exchange rates are as follows:Date Spot Rate Forward Rate October 1, 2020 .25 .29 December 31, 2020 .28 .32 January 31, 2021 .30 N/A Mertag designates the forward contract as a fair value hedge of a foreign firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therfore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored. A. Prepare journal entries for the foreign…