Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 11, Problem 11.21P

Foreign Sales
Tex Hardware sells many of its producers overseas. The following are some selected transactions.

  1. Tex sold electronic subassemblies to a firm in Denmark for 120,000 Danish kroner (Dkr) on June 6, when the exchange rate was Dkr 1 = $0.1750. Collection was made on July 3 when the rate was Dkr 1 = $0.1753.
  2. On July 22, Tex sold copper fillings to a company in London for £30,000 with payment due on September 20. Also, on July 22, Tex entered into a 60-day forward contract to sell £30,000 at a forward rate of £ 1 = $1.630. The forward contract is not designated as a hedge. The spot rates follow:

Chapter 11, Problem 11.21P, Foreign Sales Tex Hardware sells many of its producers overseas. The following are some selected , example  1

  • Tex sold storage devices to a Canadian firm for C$70,000 (Canadian dollars) on October 11, with payment due on November 10. On October 11, Tex entered into a 30-day forward contract to sell Canadian dollars at a forward rate of CS1 = $0.730. The forward contract is not designated as a hedge. The spot rates were as follows:
  • Chapter 11, Problem 11.21P, Foreign Sales Tex Hardware sells many of its producers overseas. The following are some selected , example  2
    Required
    Prepare journal entries no record Tex’s foreign sales of its products, use of forward contracts, and settlements of the receivables.

    Expert Solution & Answer
    Check Mark
    To determine

    Introduction: Foreign exchange rate is 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: Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.

    The recording of the journal entries related to the sale made by T company, use of forward contract and entries regarding the settlement.

    Explanation of Solution

    1. Journal entries to record sale of electronic subassemblies to a firm in Denmark is as follows:
      • DateParticularsDebit ($)Credit ($)
        Jun-06Accounts receivables21,000 
         To Sales account (Dkr120,000*0.1750$) 21,000
         (Recording entry for the sale of electronic subassemblies by T company at exchange rate of Dkr1=$0.1750)  
            
        Jul-03Accounts receivable36 
         To Foreign currency transaction gain [($0.1753-$0.1750) *120,000] 36
         (Recording entry for revaluing foreign currency receivable to U.S dollar)  
            
        Jul-03Foreign currency units (Dkr)21,036 
         To Accounts receivables ($0.1753*Dkr120,000) 21,036
         (Recording entry for collection of accounts receivable in Dkr i.e. Danish kroner)  
    2. Journal entries to record sale of copper fittings to a firm in London is as follows:
      • DateParticularsDebit ($)Credit ($)
        Jul-22Accounts receivable47,400 
         To sales account (£30,000*1.580) 47,400
         (Recording entry for sale of copper fittings to a company in London)  
            
        Jul-22Dollars receivable from broker48,900 
         To Foreign currency payable to broker (£30,000*1.630)  
         (Recoding entry for entering into the 60-day forward contract @1.630) 48,900
            
        Sep-20Accounts receivable960 
         To foreign currency transaction gain [(1.612-1.580) *£30,000] 960
         (recording entry for revaluing the accounts receivable at settlement date)  
            
        Sep-20Foreign currency payable to broker540 
         To foreign currency transaction gain [(1.612-1.630) *£30,000] 540
         (Recording entry for revaluing the forward contract value at settlement date)  
            
        Sep-20Foreign currency units48,360 
         To Accounts receivable (£30,000*1.612) 48,360
         (Recording entry for receipt of British pounds from accounts receivable)  
            
        Sep-20Foreign currency payable to broker48,360 
         To foreign currency units (£30,000*1.612) 48,360
         (Recording entry for payment of pounds to broker)  
            
        Sep-20Cash48900 
         To Dollars receivable from broker (£30000*1.630) 48900
         (Recording entry for receipt of U.S dollar from broker as per forward contract)  
    3. Journal entries to record sale of storage devices to a firm in Canada is as follows:
      DateParticularsDebit ($)Credit ($)
      Oct-11Accounts receivable51,450 
       To sales account (C$70,000*0.7350) 51,450
       (Recording entry for sale of storage device to a company in Canada)  
          
      Oct-11Dollars receivable from broker51,100 
       To Foreign currency payable to broker (C$70,000*0.730) 51,100
       (Recoding entry for entering into the 30-day forward contract @)  
          
      Nov-10Foreign currency transaction loss210 
       To Accounts receivable [(0.7350-0.7320) *C$70,000] 210
       (recording entry for revaluing the accounts receivable at settlement date)  
          
      Nov-10Foreign currency transaction loss140 
       To Foreign currency payable to broker [(0.7300-0.7320) *C$70,000] 140
       (Recording entry for revaluing the forward contract value at settlement date)  
          
      Nov-10Foreign currency units51,240 
       To Accounts receivable (C$70,000*0.7320) 51,240
       (Recording entry for receipt of Canadian dollar from accounts receivable)  
          
      Sep-20Foreign currency payable to broker51,240 
       To foreign currency units (C$70,000*0.7320) 51,240
       (Recording entry for payment of Canadian dollar to broker)  
          
      Sep-20Cash51,100 
       To Dollars receivable from broker (C$70,000*0.730) 51,100
       (Recording entry for receipt of U.S dollar from broker as per forward contract)  

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    Tex Hardware sells many of its products overseas. The following are some selected transactions. Tex sold electronic subassemblies to a firm in Denmark for 160,000 Danish kroner (Dkr) on June 6, when the exchange rate was Dkr 1 = $0.1710. Collection was made on July 3 when the rate was Dkr 1 = $0.1713. On July 22, Tex sold copper fittings to a company in London for £36,000 with payment due on September 20. Also, on July 22, Tex entered into a 60-day forward contract to sell £36,000 at a forward rate of £1 = $1.630. The forward contract is not designated as a hedge. The spot rates follow: July 22 £1 = $1.580 September 20 £1 = $1.612 Tex sold storage devices to a Canadian firm for C$75,000 (Canadian dollars) on October 11, with payment due on November 10. On October 11, Tex entered into a 30-day forward contract to sell Canadian dollars at a forward rate of C$1 = $0.730. The forward contract is not designated as a hedge. The spot rates were as follows: October 11 C$1 =…
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    Chapter 11 Solutions

    Advanced Financial Accounting

    Ch. 11 - Prob. 11.11QCh. 11 - Prob. 11.12QCh. 11 - Effects of Changing Exchange Rates Analysis Since...Ch. 11 - Prob. 11.2CCh. 11 - Prob. 11.5CCh. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Basic Understanding of Foreign Exposure The...Ch. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Adjusting Entries for Foreign Currency Balances...Ch. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11.1ECh. 11 - Prob. 11.11.2ECh. 11 - Prob. 11.11.3ECh. 11 - Prob. 11.11.4ECh. 11 - Prob. 11.11.5ECh. 11 - Prob. 11.11.6ECh. 11 - Prob. 11.11.7ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14.1ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.3ECh. 11 - Prob. 11.14.4ECh. 11 - Prob. 11.14.5ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.7ECh. 11 - Prob. 11.15ECh. 11 - Prob. 11.16AECh. 11 - Prob. 11.17ECh. 11 - Prob. 11.18ECh. 11 - Prob. 11.19.1ECh. 11 - Prob. 11.19.2ECh. 11 - Prob. 11.19.3ECh. 11 - Prob. 11.19.4ECh. 11 - Prob. 11.19.5ECh. 11 - Prob. 11.20.1PCh. 11 - Prob. 11.20.2PCh. 11 - Prob. 11.20.3PCh. 11 - Prob. 11.20.4PCh. 11 - Prob. 11.20.5PCh. 11 - Foreign Sales Tex Hardware sells many of its...Ch. 11 - Prob. 11.22PCh. 11 - Prob. 11.23.1PCh. 11 - Prob. 11.23.2PCh. 11 - Prob. 11.24PCh. 11 - Prob. 11.25PCh. 11 - Prob. 11.26PCh. 11 - Prob. 11.27.1PCh. 11 - Prob. 11.27.2PCh. 11 - Prob. 11.27.3PCh. 11 - Prob. 11.28APCh. 11 - Prob. 11.29.1BPCh. 11 - Prob. 11.29.2BPCh. 11 - Prob. 11.29.3BPCh. 11 - Prob. 11.29.4BPCh. 11 - Prob. 11.29.5BPCh. 11 - Prob. 11.29.6BPCh. 11 - Prob. 11.30BPCh. 11 - Prob. 11.31BPCh. 11 - Matching Key Terms Match the items in the lefthand...
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