On October 1, 2024, Richmond Company sold inventory to a customer in a foreign country, denominated in 100,000 local currency units. Collection is expected in four months. On October 1, 2024, a forward exchange contract was acquired whereby Richmond was to pay 100,000 local currency units in fourmonths (on February 1, 2025) and receive $86,000 in U.S. dollars. The spot and forward rates for the local currency units were as follows:DateRate DescriptionExchange RateOctober 1, 2024Spot Rate$ 0.911 local currency unitDecember 31, 2024Spot Rate$ 0.931 local currency unitFebruary 1, 20251-Month Forward RateSpot Rate$ 0.881 local currency unit$ 0.941 local currency unitAny discount or premium on the forward contract is amortized using the straight-line method.Required:Assuming this is a cash flow hedge, prepare journal entries for this sales transaction and forward contract.

To record the sales transaction:February 1, 2025Accounts Receivable $86,000Sales Revenue $86,000To…

Answered: On October 1, 2024, Richmond Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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…
On December 20, 2017, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 50,000 ostras. Payment is received on January 10, 2018. Currency exchange rates for 1 ostra are as follows:a. How does the fluctuation in exchange rates affect Butanta’s 2017 income statement?b. How does the fluctuation in exchange rates affect Butanta’s 2018 income statement?
On December 20, 2020, Momeier Company (a U.S.-based company) sold parts to a foreign customer at a price of 175,000 rials. Payment is received on January 10, 2021. Currency exchange rates are as follows: Date U.S. Dollar per Rial December 20, 2020 $ 1.27 December 31, 2020 1.24 January 10, 2021 1.20 How does the fluctuation in the U.S. dollar per rial exchange rate affect Momeier’s 2020 income statement?
A 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. 224,000 230,000 220,000 200,000
Iberico plc, a Spanish firm whose functional currency is EUR, bought goods from a British supplier at a cost of 10,000 GBP paid in cash. The exchange rate on the date of sale was 1 GBP = 1.2 EUR. Which the journal entry shall Iberico plc prepare regarding the purchase? Select one: a. DR Inventories 12,000 EUR, CR Cash 10,000 GBP b. DR Inventories 12,000 EUR, CR Cash 12,000 EUR C. DR Inventories 12,000 GBP, CR Cash 12,000 GBP d. DR Inventories 10,000 GBP, CR Cash 10,000 GBP Clear my choice
New Colony Corporation (a U.S. company) made a sale to a foreign customer on September 15, 2015 for 100,000 foreign currency units (FCU). It received payment on October 15, 2015. The following exchange rates for 1 FCU apply: September 15, 2015 $0.40, September 30, 2015 $0.42 and October 15, 2015 $0.37. Prepare all journal entries for New Colony in connection with this sale, assuming that the company closes its books on September 30 to prepare interim financial statements.
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.…
3. On October 1, IJR International received an order from a Japanese customer for 2,500,000 Yen to be paid upon receipt of the goods, scheduled for December 1. The rates for $1 US are as follows: Spot rate, October 1 Forward rate, December 1 Spot rate, December 1 Exchange Rates for $1 for Yen 83 82 81 (a) Calculate what IJR would receive from the Japanese customer in US dollars using the spot rate at the time of the order. (b) Calculate what IJR would receive from the Japanese customer in US dollars using the spot rate at the time of payment. (c) Calculate the amount that IJR expects to receive on December 1 if IJR's policy is to hedge foreign currency transactions. (d) How can IJR protect itself from the risk of the transaction?
During December of the current year, Exide company based in America, entered into the following transactions; Dec 10 Sold machinery to company located in Colombia for 6,500,000 pesos. On this date, the spot rate was 365 pesos per U.S. Dollar. Dec 12 Purchased Machine parts from a company domiciled in Japan. The contract was denominated in 600,000 Japan yen. The direct exchange spot rate on this date was $.0392. Required: Prepare journal entries to record the transactions above on the books of Exide company. The company uses a periodic inventory system. Prepare journal entries necessary to adjust the accounts as of December 31. Assume that on December 31 the direct exchange rates were as follows: Colombia peso $.00265 Japan yen .0353 Prepare journal entries to record settlement of both open accounts on January 10. Assume that the direct exchange rates on the settlement dates were as follows:…
Brandlin company of anaheim, california, sells parts to a foreign customer on december 1, 2017, with payment of 24,000 korunas to be received on march 1, 2018. Brandlin enters into a forward contact on december 1, 2017 to sell 24,000 korunas on march 1, 2018. Relevant exchange rates for the korunas on various dates are as follow: date spot rate forward rate december 1, 2017 4.20 4.275 december 31, 2017 4.30 4.400 march 1, 2018 4.45 n/a brandli's incremental borrowing rate is 12 percent. The present value factor for two months at 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. 1. Assuming that brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount…
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.
Iberico plc, a Spanish firm whose functional currency is EUR, sold goods to a British customer for 10,000 GBP on credit. The exchange rate on the date of sale was 1 GBP = 1.2 EUR. Which the journal entry shall Iberico plc prepare regarding the sale? a. DR Cash 12,000 EUR, CR Sale 12,000 EUR b. DR Receivable 10,000 GBP, CR Sale 10,000 GBP c. DR Cash 10,000 GBP, CR Sale 10,000 GBP d. DR Receivable 12,000 EUR, CR Sale 12,000 EUR

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