prepare table showing gain/loss on the hedging instrument and provide journal entries for paradise ltd. to account for the hedge. On 1 April 2021 Paradise Ltd, an Australia entity, places an order for US$3.5 million of inventory withBlue Ltd, a US supplier. The goods will be purchased FOB New York. A decision is made to take out aforeign exchange forward-rate contract for US$3.5 million on 1 April 2021 with the Bank in which theBank agrees to supply Paradise Ltd with US$3.5 million on 1 August 2021. The goods are shipped on1 June 2021 and are paid for on 1 August 2021.Relevant exchange rates are as followsSpot rateA$1= US$0.92A$1= US$0.89A$1= US$0.85A$1= US$0.88DateForward rate1 April 20211 June 202130 June 2021A$1= US$0.89A$1= US$0.86A$1= US$0.82A$1= US$0.881 August 2021Assume that the hedging arrangement satisfies the requirements for hedge accounting as stipulatedin AASB 9 'Financial Instruments', and the management of Paradise Ltd adopts Cash flow hedgeaccounting.Required:(a) Prepare a table showing Gains/losses on the hedging instrument.(b) Provide the journal entries for Paradise Ltd to account for the hedge [Narrations are notrequired].

Answered: On 1 April 2021 Paradise Ltd, an…

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter9: Taxation Of International Transactions

Section: Chapter Questions

Problem 27P

See similar textbooks

Similar questions

On September 30, 2020, Chicken Ltd., a Canadian company, entered into a contract to purchase goodsfrom Wing Ltd., a foreign corporation. The terms of the contract call for the goods to be delivered toChicken Ltd.'s Edmonton location on May 30, 2021. The cost of goods is EUR $1,000,000 to be settled onJuly 31, 2021. On September 30, 2020, Chicken Ltd. also arranged for a forward contract through its bank for EUR$1,000,000. The goods were delivered on time, and Chicken Ltd, settled with Wing Ltd. on July 31, 2021.Chicken Ltd. has a April 30 year-end.The spot and forward rates are as follows: Spot Rate ($CAD)1 USD = x.xX CAD Forward Rate($CAD)1 USD = XXX CAD September 30, 2020 $1.42 $1.46 April 30, 2021 $1.44 $1.48 May 30, 2021 $1.45 $1.49 July 31, 2021 $1.50 $1.50 RequiredPrepare Chicken Ltd.'s journal entries to reflect the above assuming that:a. the hedge is a cash flow hedge, andb. the hedge is a fair value hedge.
Doering Company, a U.S. corporation with customers in several foreign countries, had the following selected transactions for 2019 and 2020. 2019 Apr. 8 Sold merchandise to Salinas & Sons of Mexico for $5,938 cash. The exchange rate for pesos is $0.1043 on this day. July 21 Sold merchandise on credit to Sumito Corp. in Japan. The price of 1.5 million yen is to be paid 120 days from the date of sale. The exchange rate for yen is $0.0094 on this day. Oct. 14 Sold merchandise for 19,000 pounds to Smithers Ltd. of Great Britain, payment in full to be received in 90 days. The exchange rate for pounds is $1.4566 on this day. Nov. 18 Received Sumito’s payment in yen for its July 21 purchase and immediately exchanged the yen for dollars. The exchange rate for yen is $0.0092 on this day. Dec. 20 Sold merchandise for 17,000 ringgits to Hamid Albar of Malaysia, payment in full to be received in 30 days. On this day, the exchange rate for ringgits is $0.4501. Dec. 31 Recorded adjusting entries…
On 1 November 2022, Long Ltd enters a contract to buy inventory from an overseas supplier, with the inventory to be delivered in six months' time. A sum of US$1 000000 is payable on delivery of the inventory. Long Ltd does not want to be exposed to potential losses associated with changes in the exchange rate. As a result, Long Ltd takes out a forward rate contract with Board Bank to purchase US$1 000000 in six months' time at an exchange rate of A$1.00 = US$0.70. REQUIRED Explain who now bears the risks associated with changes in the exchange rate, and calculate how much Long Ltd will ultimately pay for the invento
Carl Inc. purchased inventory on September 12, 2017 from a foreign customer for 750,000 units of foreign currency (FC) due on January 12, 2018. Simultaneously, the company entered into a forward contract for 750,000 units of FC for delivery on January 12, 2018 at the forward rate of $1.03. Payment was made to the foreign customer on January 12, 2018. The company ends its fiscal year on December 31. The following exchange rates were quoted: Forward Rate Date Spot Rate (Delivery on 1/12/2018) 9/12/2017 1.01 1.03 12/31/2017 1.08 1.09 1/12/2018 1.05 Notes: Read carefully and follow strictly so that Bb can grade you correctly!1. Use comma in numbers, one thousand is 1,000, not 1000. Round to the nearest dollar: 1,000.45 should be 1,000, and 1,000.55 should be 1,001, no decimal points. No $ sign.2. If no entry is required, write N/A.3. Only use the following accounts: Inventory, A/P (FC), A/R (FC), Cash, Sales, CGS, Exchange G/L, Fwd Contract,…
A company located in the USA, which has the dollar as its functional currency, purchased inventory on February 1 in Vietnam for 10,000,000 dongs with a payment date of April 1. One dong can be exchanged for $0.01 on February 1, and one dong can be exchanged for $0.12 on April 1. On April 1, the company pays off the 10,000,000-dong debt from the purchase of inventory. When the US company presents its financial statements, which of the following statements is false? The business should file with the statement a gross profit of $110,000. No profit is recognized related to inventory A loss of $20,000 is reported as a result of accounts payable Cost of goods sold is reported at $120,000
Assume that Gilligan Ltd enters into a contract to buy inventory from an overseas supplier. On1 February 2023 it acquires the material at a cost of US$500,000 payable in two months’ time.The exchange rate at the time is A$1 = US$1.15. The actual debt is considered to be a tradepayable and is a primary financial instrument. The exchange rate on 1 April 2023 is A$1 =US$1.09.Required:(a) As the debt is payable in two months’ time describe the potential risk to Gilligan Ltd.(b) Assume that McCoy Ltd is concerned about possible adverse exchange ratemovements, what action could the company take?
Leigh of New York sells its products to customers in the United States and the United Kingdom. On December 16, 2019, Leigh sold merchandise on credit to Bronson Ltd. of London at a price of 17,000 pounds. The exchange rate on that day for £1 was $1.4583. On December 31, 2019, when Leigh prepared its financial statements, the rate was £1 for $1.4382. Bronson paid its bill in full on January 15, 2020, at which time the exchange rate was £1 for $1.4482. Leigh immediately exchanged the 17,000 pounds for U.S. dollars. Prepare Leigh’s journal entries on December 16, December 31, and January 15 (round to the nearest dollar).
Local Corp imported a heavy machine from the US for US$50,000 on October 10, 2019. A letter of credit was opened with a Makati branch based on the commercial invoice for US$50,000, on which Local Corpl made a 100% deposit cover based on the exchange rate of $1.00 to P27.50. Shipment of the heavy machine was effected on December 30, 2019, at which time the exporter collected the proceeds of the letter of credit when the prevailing exchange rate was $1.00 to P28.00. From the exchange rate fluctuation, Local Corp realized: Group of answer choices A. P25,000 gain B.P25,000 loss C. P5,000 gain D. No gain, No loss
On December 15, 2020, Lisbeth Inc. (a U.S.-based company) purchases merchandise inventory from a foreign supplier for 50,000 schillings. Lisbeth agrees to pay in 45 days, after it sells the merchandise. Lisbeth makes sales rather quickly and pays the entire obligation on January 25, 2021. Currency exchange rates for 1 schilling are as follows: Date U.S. Dollar per Schilling December 15, 2020 $ 0.28 December 31, 2020 0.30 January 25, 2021 0.33 January 31, 2021 0.34 Prepare all journal entries for Lisbeth Company in connection with this purchase and payment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
On March 1, 2019, a U.S. company made a credit sale requiring payment in 30 days from a Malaysian company, Hamac Sdn. Bhd., of 20,000 Malaysian ringgits. Assuming the exchange rate between Malaysian ringgits and U.S. dollars is $0.4538 on March 1 and $0.4899 on March 31, prepare the entries to record the sale on March 1 and the cash receipt on March 31.
Brandlin Company of Anaheim, California, purchases materials from a foreign supplier on December 1, 2017, with payment of 32,000 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 32,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows: Date Spot Rate Forward Rate(to March 1, 2018) December 1, 2017 $ 5.00 $ 5.075 December 31, 2017 5.10 5.200 March 1, 2018 5.25 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. a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency payable and recognizes any…
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,…

SEE MORE QUESTIONS

Recommended textbooks for you

SWFT Corp Partner Estates Trusts

Accounting

ISBN:

9780357161548

Author:

Raabe

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

SWFT Corp Partner Estates Trusts

Accounting

ISBN:

9780357161548

Author:

Raabe

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

SEE MORE TEXTBOOKS