a.
Introduction: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e. direct exchange rate and indirect exchange rate. Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
Dollar strengthen or weaken in relation to peseta during the period between October 1 to December 31 also between the period of January 1 to April 1 of next year.
b.
Introduction: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e. direct exchange rate and indirect exchange rate. Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
Journal entries for sale and settlement of foreign transaction.
c.
Introduction: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e. direct exchange rate and indirect exchange rate. Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
The amount of net gain or loss due to foreign currency transaction.
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Advanced Financial Accounting
- On August 1, Ling-Harvey Corporation (a U.S.-based importer) placed an order to purchase merchandise from a foreign supplier at a price of 400,000 ringgits. Ling-Harvey will receive and make payment for the merchandise in three months on October 31. On August 1, Ling-Harvey entered into a forward contract to purchase 400,000 ringgits in three months at a forward rate of $0.60. It properly 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. Relevant exchange rates for the ringgit are as follows:Ling-Harvey’s incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Ling-Harvey must close its books and prepare its third-quarter financial statements on September 30.a. Prepare journal entries for the forward contract and firm commitment through October 31.b.…arrow_forwardOn November 1, 20X6, Smith Imports Incorporated contracted to purchase teacups from England for £50,000. The teacups were to be delivered on January 30, 20X7, with payment due on March 1, 20X7. On November 1, 20X6, Smith entered into a 120-day forward contract to receive 50,000 pounds at a forward rate of £1 = $1.55. The forward contract was acquired to hedge the financial component of the foreign currency commitment. Additional Information for the Exchange Rate Assume the company uses the forward rate in measuring the forward exchange contract and for measuring hedge effectiveness. Spot and exchange rates follow: Date Spot Rate Forward Rate for March 1, 20X7 November 1, 20X6 £1 = $1.60 £1 = $ 1.55 December 31, 20X6 £1 = 1.63 £1 = 1.60 January 30, 20X7 £1 = 1.55 £1 = 1.56 March 1, 20X7 £1 = 1.545 Required: b. Prepare all journal entries from November 1, 20X6, through March 1, 20X7, for the purchase of the teacups, the forward exchange contract, and the foreign…arrow_forwardFlynn Corporation purchased bicycles from a British manufacturer at a price of 45,000 British pounds on November 15, Year 1with payment due in 60 daysUsing the following exchange rateswhat gain or loss from currency fluctuations should be recognized in Year 1 and Year 2 respectively? Nov. 15, Year 1 1.70 per British pound Dec. 31, Year 1 1.75 per British pound Jan. 15, Year 2 $1.73 per British poundarrow_forward
- On December 1, Y1, AAA, a US based company, entered into a three months forward contract to purchase 1 million foreign currency FC, on March 1, Y2. The following US per FC exchange rates apply: Date Spot Rate Forward Rate December 1, Y1 $0.088 $0.084 December 31, Y1 $ 0.080 $0.074 March 1, Y2 $0.076 AAA borrowing rate is 12%. The present value factor for 2 months at an annual rate is 0.9803. How would AAA report the forward contract on its balance sheet on December 31, Y1? Justify your answer and show your calculations. 3 pts As a liability of 9,803. 1,000,000 x (0.084-0.074) = 10,000 x 0.9803 = 9803arrow_forwardOn November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 100,000 FCUs with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 100,000 FCUs. The company properly designates the forward contract as a cash flow hedge of a foreign currency receivable. The following exchange rates apply: Date Spot rate Forward rate (to April 30, 2018) November 1, 2017 $0.21 $0.20 December 31, 2017 0.19 0.17 April 30, 2018 0.18 N/A Bernard’s incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610.a. Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract.b. What is the impact on net income in 2017?c. What is the impact on net income in 2018?arrow_forwardA U.S. firm exports products to a German firm and will receive payment of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, the firm negotiated a forward contract with a bank to sell €200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. the firm will receive $_______ for the euros. 224,000 230,000 220,000 200,000arrow_forward
- Tara Corporation issued a promissory note denominated in foreign currency for the purchase made from a supplierin England on December 1, for a 60-day, 12% promissory note for 100,000 pounds, at a selling rate of 1FC to P65.50. OnDecember 31, the selling spot rate is 1FC to P64.80. On January 30, the selling spot rate is 1FC to P65.45On the settlement date, how much is the foreign exchange loss?arrow_forwardOn May 8, 2019, Jett Company (a U.S. company) made a credit sale to Lopez (a Mexican company). The terms of the sale required Lopez to pay 800,000 pesos on February 10, 2020. Jett prepares quarterly financial statements on March 31, June 30, September 30, and December 31. The exchange rates for pesos during the time the receivable is outstanding follow. Compute the foreign exchange gain or loss that Jett should report on each of its quarterly income statements for the last three quarters of 2019 and the first quarter of 2020. Also compute the amount reported on Jett’s balance sheets at the end of each of its last three quarters of 2019. May 8, 2019 . $0.1323 June 30, 2019 . 0.1352 September 30, 2019 . 0.1368 December 31, 2019 0.1335 February 10, 2020 . 0.1386arrow_forwardOn December 12, 20X5, Dahl Company entered into three forward exchange contracts, each to purchase 100,000 francs in 90 days. The relevant exchange rates are as follows: Spot Rate Forward Rate for March 12, 20X6 December 12, 20X5 $ 0.88 $ 0.90 December 31, 20X5 0.98 0.93 3. Dahl entered into the first forward contract to manage the foreign currency risk from a purchase of inventory in November 20X5, payable in March 20X6. The forward contract is not designated as a hedge. At December 31, 20X5, what amount of foreign currency transaction gain should Dahl include in income from this forward contract? multiple choice $10,000 $0 $5,000 $3,000 4. Dahl entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Dahl’s specifications. At December 31, 20X5, what amount of foreign currency transaction gain should Dahl include in income from this forward contract? multiple choice $10,000 $0 $5,000…arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT