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.
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.
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter13: Marketable Securities And Derivatives
Section: Chapter Questions
Problem 22E
Related questions
Question
![Un November 1, 2020 ABC Company (ABC), the U.S. based company forecasts the purchase of
goods from a foreign supplier for 100,000 yuan. ABC expects to receive the goods on April 20,
2021, and make immediate payment. On November 1, 2020, ABC 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
November 1, 2020
December 31, 2020
April 30, 2021
Spot Rate
$0.21
$0.19
$0.18
Forward Rate to April 30,
2021
$0.195
$0.170
N/A
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81613f83-a015-4a12-8b72-2d210ecc3d98%2F72142216-28ac-4bd6-bd6f-e38ad8fca8f9%2Fumsadcn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Un November 1, 2020 ABC Company (ABC), the U.S. based company forecasts the purchase of
goods from a foreign supplier for 100,000 yuan. ABC expects to receive the goods on April 20,
2021, and make immediate payment. On November 1, 2020, ABC 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
November 1, 2020
December 31, 2020
April 30, 2021
Spot Rate
$0.21
$0.19
$0.18
Forward Rate to April 30,
2021
$0.195
$0.170
N/A
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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