Imp entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Imp specifications. At December 31, 2022, what amount of foreign currency transaction gain should Imp include in income from this forward contract? a. $0 b. $3,000 c. $5,000 d. $10,000
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On December 12, year 11, Imp Co. entered into three forward exchange contracts, each to purchase 100,000 LCU's in 90 days. The relevant exchange rates are as follows:
Spot rate Forward rate
(for March 12, year 12)
December 12, year 11 $0.88 $0.90
December 31, year 11 $0.98 $0.93
Imp entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Imp specifications. At December 31, 2022, what amount of foreign currency transaction gain should Imp include in income from this forward contract?
a. $0
b. $3,000
c. $5,000
d. $10,000
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- On 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 1. The following information applies to Denton Incorporated’s sale of 10,000 foreign currency units under a forward contract dated November 1, 20X5, for delivery on January 31, 20X6: 11/1/X5 12/31/X5 Spot rates $ 0.80 $ 0.83 30-day forward rate 0.79 0.82 90-day forward rate 0.78 0.81 1. Denton entered into the forward contract to speculate in the foreign currency. In its income statement for the year ended December 31, 20X5, what amount of loss should Denton report from this forward contract? multiple choice $400 $300 $200 $0 2. On September 1, 20X5, Johnson Incorporated entered into a foreign exchange contract for speculative purposes by purchasing €50,000 for…The following information are the import transaction between Peerless Products and Tokyo Industries: On August 1, 20X1, Peerless contracts to purchase special-order goods from Tokyo Industries. Their manufacture and delivery will take place in 60 days (on October 1, 20X1). The contract price is 2,000,000 yen.. Timing USD/YEN Hedge Commencement 0.0065 30 days later (first reporting date) 0.0075 • 60 days later (purchase takes place and the payment is made) 0.0070 Required: prepare the journal entry based on the given informationOn December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to purchase 200,000 Canadian dollars (C$). Denizen's fiscal year ends on December 31. The forward contract was to hedge a firm commitment agreement made on December 1, 20X8, to purchase electronic goods on January 30, with payment due on March 31, 20X8. The derivative is designated as a fair value hedge. The direct exchange rates follow: Spot Rate Forward Rate for March 1, 20X9 December 1, 20X8 $ 0.940 $ 0.944 December 31, 20X8 $ 0.945 $ 0.947 January 30, 20X9 $ 0.942 $ 0.943 March 31, 20X9 $ 0.941 Required: Prepare all journal entries for Denizen Corporation.
- On June 30 of the current year, Ester Company entered into a firm commitment to purchase equipment from Nagasaki Company for 80,000,000 yen on August 31. The exchange rate on June 30 is 100 yen = $1. To reduce the exchange rate risk that could increase the cost of the equipment in US dollars, the entity paid $12,000 for a call option contract. The contract gave the entity the option to purchase 80,000,000 yen at an exchange rate of 100 yen = $1 on August 31. On August 31, the exchange rate is 93 yen = $1. What amount in US dollars did the entity save by purchasing the call option? A. 12,000 C. 60,215 B. 48,215 D. 0On November 1, 20X5, Davis signed a contract to purchase equipment from a foreign company for 200,000 francs. The equipment was delivered to Davis on December 1 with payment due in 90 days on March 1, 20X6. On November 1, 20X5, Davis Company entered into a 120-day forward contract to purchase 200,000 francs. The forward contract was designated as a fair value hedge of a firm commitment. The relevant exchange rates are as follows: Date November 1, 20X5 December 1, 20X5 December 31, 20X5 March 1, 20X6 Spot Rate O $3,000 loss O $2,000 loss O $4,000 gain O $1,000 gain $0.85 $0.90 $0.93 $0.99 Forward Rate (to March 1, 20X6) $0.88 $0.92 $0.97 What amount of foreign currency transaction gain or loss would Davis report on its income statement for year 20X5? OCOn 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…
- [The following information applies to the questions displayed below.] Select the correct answer for each of the following questions. Note: Items 3 through 5 are based on the following: On 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 2. On September 1, 20X5, Johnson Incorporated entered into a foreign exchange contract for speculative purposes by purchasing €50,000 for delivery in 60 days. The rates to exchange U.S. dollars for euros follow: 9/1/X5 9/30/X5 Spot rates $ 0.75 $ 0.70 30-day forward rate 0.73 0.72 60-day forward rate 0.74 0.73 In its September 30, 20X5, income statement, what amount should Johnson report as foreign exchange loss? multiple choice $2,500 $500 $1,500 $1,000Suppose that two counterparties, A and B, enter a three-month forward contract on January 1st, whereby A buys USD1 million at a forward rate of AUD/USD 1.7662. On March 1st, A decides it no longer needs to buy USD1 million on 31 March, so it enters a one-month forward contract to sell USD1 million on 31 March at a forward rate of AUD/USD 1.8000 from counterparty C. a) Calculate the net cost to counterparty A, before transaction costs. b) Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. ?_0 (EUR/AUD) 0.60 Se (EUR/AUD) 0.50 (0.3) and 0.65 (0.7) Premium on AUD call option R = EUR0.02 Exercise exchange rate E = 0.62 Time to expiry 3 months 1) What is the expected spot rate? 2) What is the expected value of payables in AUD under hedge? 3) Will the option to hedge be undertaken on the basis of…On 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…
- On November 1, 2020, Americo, Corporation purchased wine on credit from Venezia Company for €800,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2021. On November 1, 2020, Americo, Corporation also entered a 120-day forward contract to purchase €800,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT FORWARD 11/1/2020 $ 1.22 $ 12/31/2020 2/28/2021 $ 1.19 1.24 (120 days) 1.17 (60 days) 1.18 $On December 1, Year 1, Triaxal Incorporation enters into a forward contract to sell one million Philippines pesos (PP) to its bank in exchange for Canadian dollars on March 1, Year 2, at the market rate for a 90-day forward contract of PP1=$0.0227. On December 31, Year 1, Triaxal’s year-end, the 60-day forward rate to sell Philippines pesos on March 1 is quoted at PP1=$0.0222. On March 1, Year 2, the currencies are exchanged when the spot rate is PP1=$0.0220. Required Prepare journal entries for speculative forward contract under Gross Method and Net Method.On November 1, 2021, Americo, Corporation purchased wine on credit from Venezia Company for €800,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2022. On November 1, 2021, Americo, Corporation also entered a 120-day forward contract to purchase €800,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT FORWARD11/1/2021 $ 1.09 $ 1.06 (120 days) 12/31/2021 $ 1.05 $ 1.11 (60 days) 2/28/2022 $ 1.12 JOURNAL ENTRIES ON NOVEMBER 1, 2021 (TRANSACTION DATE): Foreign Currency Transaction YEAR-END OF DECEMBER 31, 2021: JOURNAL ENTRIES:Foreign Currency Transaction FINANCIAL STATEMENT PRESENTATION INCOME STATEMENT JOURNAL ENTRIES ON FEBRUARY 28, 2022 (SETTLEMENT DATE):