a.
Prepare
a.
Explanation of Solution
The journal entries which need to be passed in books:
Date | Particular | Post Ref. | Debit($) | Credit($) |
11/1/17 | 21,000 | |||
Sales | 21,000 | |||
( To record sale and account receivable at spot rate | ||||
( No formal entry for forward contract because it is an executor contract) | ||||
12/3/17 | Foreign exchange loss | 2,000 | ||
Account Receivable | 2,000 | |||
(To relevant the foreign currency account receivable and recognized foreign currency loss working note -1) | ||||
12/3/17 | Forward contact | 2,883 | ||
AOCI ( Accumulated other comprehensive Income) | 2,883 | |||
( To record change in fair value of the forward contract as an asserts(Working note-2)) | ||||
AOCI ( Accumulated other comprehensive Income) | 2,000 | |||
Gain on forward contract | 2,000 | |||
(To record gain on forward contract option to affect the loss) | ||||
Discount as expenses | 338.76 | |||
AOCI ( Accumulated other comprehensive Income) | 338.76 | |||
(To allocate the discount an forward contract as expense occur the life of the contract (working note-3)) |
Table: (1)
Working note:
Computation of foreign exchange loss spot rate:
Given:
Thus,
Forward contract:
Given:
Thus,
Interest rate is
Computation of discount expense:
The journal entries in 2018:
Date | Particular | Post Ref. | Debit($) | Credit($) |
4/30/2018 | Loss on foreign exchange | 1,000 | ||
Account Receivable | 1,000 | |||
( To relevant at spot rate as an 4/30/2018) | ||||
( No formal entry for forward contract because it is an executor contract) | ||||
12/3/17 | Forward contact | 883 | ||
AOCI ( Accumulated other comprehensive Income) | 883 | |||
(To adjust the carrying value of forward contact at fair value on 4/30/2018) working note-1 | ||||
AOCI ( Accumulated other comprehensive Income) | 1,000 | |||
Gain on forward contract | 1,000 | |||
(To record gain on forward contract to affect the loss) working note-2 | ||||
Discount as expenses | 661.24 | |||
AOCI ( Accumulated other comprehensive Income) | 661.24 | |||
(To allocate the discount as expense occur the life of the contract (working note-3)) | ||||
Foreign currency | 18,000 | |||
Account Receivable | 18,000 | |||
( To record the receipt of account receivable from customer) | ||||
Cash | 20,000 | |||
Forward contract | 2,000 | |||
Foreign currency | 18,000 | |||
( To record the settlement of forward contract) |
Table: (2)
Working note:
Forward contract:
Thus,
Computation of gain on forward contract:
and
Thus,
Computation of discount as expense :
Thus,
Discount in 2018:
b.
Identify the impact on net income in 2017.
b.
Explanation of Solution
Impact on net income in 2017:
Particular | Amount($) | Amount($) |
Sale Revenue | 210,000 | |
Foreign exchange loss |
(2,000) | |
Gain on forward contract | 2,000 | 0 |
Discount as expenses | 338.76 | |
Total gain |
20661.24 |
Table: (3)
c.
Identify the impact on net income in 2018.
c.
Explanation of Solution
Impact on net income in 2018:
Particular | Amount($) | Amount($) |
Foreign exchange loss | (1,000) | |
Gain on forward exchange | 1,000 | |
Net gain/(loss) | 0 | |
Discount as an expenses | (661.24) | |
Net/Total impact |
(661.24) |
Table: (4)
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Chapter 9 Solutions
ADVANCED ACCTG W/CONNECT CODE >BI<
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