Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies. The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

Question

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Answer 1

Question

Chapter 11, Problem 11.23.2P

a

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

a

Expert Solution

Explanation of Solution

Date	Particular	Debit $	Credit $
03/01/X5	Dollars receivable from broker	19,200
	Foreign currency payable to exchange broker		19,200
	(Signed a forward exchange contract for 90 days)

5/30/X5	Foreign currency transaction loss	1,200
	Foreign currency payable to exchange broker		1,200
	(Exchange transaction loss recognized on revaluation of payable)

	Foreign currency payable to exchange broker	20,400
	Foreign currency units		20,400
	(Foreign currency payable recognized)

	Cash	19,200
	Dollars receivable from exchange broker		19,200
	(Cash received from exchange broker)

Foreign currency receivable from broker

$$19,200 = C$0,000 × $.64$

Revaluation of accounts payable to current U.S. dollars

$C$30,000 × $.68 May 30 spot rate$	$20,400
$C$30,000 × $.64 March 1 forward rate$	($19,200)
Foreign currency transaction loss	$1,200

Foreign currency payable to exchange broker recognized

$$20,400 =C$30,000 × $.68 May 30 spot rate$

Dollars received from exchange broker $19,200

b

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X5 in Part I and II are combined

b

Expert Solution

Answer to Problem 11.23.2P

Net loss in 20X5 $1,100

Explanation of Solution

Computation of foreign exchange transaction loss 20X5

	Gain $	Loss $
Transaction 1: May 30 Part I	900
May 30 Part II		1,200

Transaction 2: August 30 Part II	250	250
October 29 Part I		1,000
October 29 Part II	250

Transaction 3: December 31 Part I	200
December 31, Part II		250
Net loss	$1,100

Transaction 1.

Part I

Spot rate on March 1 C$1 = $0.65 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $900 = C$30,000 = ($0.68 − $0.65)$

Part II

Spot rate on March 1 C$1 = $0.64 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $1,200 = C$30,000 = ($0.68 − $0.64)$

Transaction 2.

Part I

Spot rate on July 1 ¥1 = $0.104 and spot rate on October 29 ¥1 = $0.106

$Gain on October 29 : $1,000 = ¥500,000 = ($0.106 − $0.104)$

Part II

Spot rate on July 1 ¥1 = $0.104 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Forward rate on July 1 ¥1 = $0.105 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.65 and spot rate on December 30 £1 = $1.63

$Gain on December 30 : $200 = £10,000 = ($1.65 − $1.63)$

Part II

Forward rate on November 16 £1 = $1.67 and spot rate on December 30 £1 = $1.645

$Gain on December 30 : $250 = £10,000 = ($1.67 − $1.645)$

c

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X6 in Part I and II are combined

c

Expert Solution

Answer to Problem 11.23.2P

Net Loss in 20X6 $150

Explanation of Solution

Computation of foreign exchange transaction loss 20X6

	Gain $	Loss $
Transaction 3
Part I January 15, 20X6	-	100
Part II January 15,20X6	-	50
Net loss		150

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.63 and spot rate on January 15 £1 = $1.64

$Gain on January 15 : $100 = £10,000 = ($1.64 − $1.63)$

Part II

Forward rate on December 31 £1 = $1.645 and spot rate on January 15 £1 = $1.640

$Gain on December 30 : $50 = £10,000 = ($1.645 − $1.640)$

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Students have asked these similar questions

Grouper Corporation purchased machinery on January 1, 2025, at a cost of $264,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $31,400. The company is considering different depreciation methods that could be used for financial reporting purposes. (a) Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate.

Your company reported the following financial data for the year: • Net sales: $1,200,000 • Average total assets: $800,000 • Operating income: $90,000 • Required rate of return: 10% What is the asset turnover for the year? a) 1.25 times b) 1.50 times c) 1.80 times d) 2.00 times

Please explain the solution to this general accounting problem with accurate principles.

Answer 2

Question

Chapter 11, Problem 11.23.2P

a

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

a

Expert Solution

Explanation of Solution

Date	Particular	Debit $	Credit $
03/01/X5	Dollars receivable from broker	19,200
	Foreign currency payable to exchange broker		19,200
	(Signed a forward exchange contract for 90 days)

5/30/X5	Foreign currency transaction loss	1,200
	Foreign currency payable to exchange broker		1,200
	(Exchange transaction loss recognized on revaluation of payable)

	Foreign currency payable to exchange broker	20,400
	Foreign currency units		20,400
	(Foreign currency payable recognized)

	Cash	19,200
	Dollars receivable from exchange broker		19,200
	(Cash received from exchange broker)

Foreign currency receivable from broker

$$19,200 = C$0,000 × $.64$

Revaluation of accounts payable to current U.S. dollars

$C$30,000 × $.68 May 30 spot rate$	$20,400
$C$30,000 × $.64 March 1 forward rate$	($19,200)
Foreign currency transaction loss	$1,200

Foreign currency payable to exchange broker recognized

$$20,400 =C$30,000 × $.68 May 30 spot rate$

Dollars received from exchange broker $19,200

b

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X5 in Part I and II are combined

b

Expert Solution

Answer to Problem 11.23.2P

Net loss in 20X5 $1,100

Explanation of Solution

Computation of foreign exchange transaction loss 20X5

	Gain $	Loss $
Transaction 1: May 30 Part I	900
May 30 Part II		1,200

Transaction 2: August 30 Part II	250	250
October 29 Part I		1,000
October 29 Part II	250

Transaction 3: December 31 Part I	200
December 31, Part II		250
Net loss	$1,100

Transaction 1.

Part I

Spot rate on March 1 C$1 = $0.65 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $900 = C$30,000 = ($0.68 − $0.65)$

Part II

Spot rate on March 1 C$1 = $0.64 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $1,200 = C$30,000 = ($0.68 − $0.64)$

Transaction 2.

Part I

Spot rate on July 1 ¥1 = $0.104 and spot rate on October 29 ¥1 = $0.106

$Gain on October 29 : $1,000 = ¥500,000 = ($0.106 − $0.104)$

Part II

Spot rate on July 1 ¥1 = $0.104 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Forward rate on July 1 ¥1 = $0.105 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.65 and spot rate on December 30 £1 = $1.63

$Gain on December 30 : $200 = £10,000 = ($1.65 − $1.63)$

Part II

Forward rate on November 16 £1 = $1.67 and spot rate on December 30 £1 = $1.645

$Gain on December 30 : $250 = £10,000 = ($1.67 − $1.645)$

c

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X6 in Part I and II are combined

c

Expert Solution

Answer to Problem 11.23.2P

Net Loss in 20X6 $150

Explanation of Solution

Computation of foreign exchange transaction loss 20X6

	Gain $	Loss $
Transaction 3
Part I January 15, 20X6	-	100
Part II January 15,20X6	-	50
Net loss		150

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.63 and spot rate on January 15 £1 = $1.64

$Gain on January 15 : $100 = £10,000 = ($1.64 − $1.63)$

Part II

Forward rate on December 31 £1 = $1.645 and spot rate on January 15 £1 = $1.640

$Gain on December 30 : $50 = £10,000 = ($1.645 − $1.640)$

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Answer 3

Question

Chapter 11, Problem 11.23.2P

a

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

a

Expert Solution

Explanation of Solution

Date	Particular	Debit $	Credit $
03/01/X5	Dollars receivable from broker	19,200
	Foreign currency payable to exchange broker		19,200
	(Signed a forward exchange contract for 90 days)

5/30/X5	Foreign currency transaction loss	1,200
	Foreign currency payable to exchange broker		1,200
	(Exchange transaction loss recognized on revaluation of payable)

	Foreign currency payable to exchange broker	20,400
	Foreign currency units		20,400
	(Foreign currency payable recognized)

	Cash	19,200
	Dollars receivable from exchange broker		19,200
	(Cash received from exchange broker)

Foreign currency receivable from broker

$$19,200 = C$0,000 × $.64$

Revaluation of accounts payable to current U.S. dollars

$C$30,000 × $.68 May 30 spot rate$	$20,400
$C$30,000 × $.64 March 1 forward rate$	($19,200)
Foreign currency transaction loss	$1,200

Foreign currency payable to exchange broker recognized

$$20,400 =C$30,000 × $.68 May 30 spot rate$

Dollars received from exchange broker $19,200

b

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X5 in Part I and II are combined

b

Expert Solution

Answer to Problem 11.23.2P

Net loss in 20X5 $1,100

Explanation of Solution

Computation of foreign exchange transaction loss 20X5

	Gain $	Loss $
Transaction 1: May 30 Part I	900
May 30 Part II		1,200

Transaction 2: August 30 Part II	250	250
October 29 Part I		1,000
October 29 Part II	250

Transaction 3: December 31 Part I	200
December 31, Part II		250
Net loss	$1,100

Transaction 1.

Part I

Spot rate on March 1 C$1 = $0.65 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $900 = C$30,000 = ($0.68 − $0.65)$

Part II

Spot rate on March 1 C$1 = $0.64 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $1,200 = C$30,000 = ($0.68 − $0.64)$

Transaction 2.

Part I

Spot rate on July 1 ¥1 = $0.104 and spot rate on October 29 ¥1 = $0.106

$Gain on October 29 : $1,000 = ¥500,000 = ($0.106 − $0.104)$

Part II

Spot rate on July 1 ¥1 = $0.104 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Forward rate on July 1 ¥1 = $0.105 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.65 and spot rate on December 30 £1 = $1.63

$Gain on December 30 : $200 = £10,000 = ($1.65 − $1.63)$

Part II

Forward rate on November 16 £1 = $1.67 and spot rate on December 30 £1 = $1.645

$Gain on December 30 : $250 = £10,000 = ($1.67 − $1.645)$

c

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X6 in Part I and II are combined

c

Expert Solution

Answer to Problem 11.23.2P

Net Loss in 20X6 $150

Explanation of Solution

Computation of foreign exchange transaction loss 20X6

	Gain $	Loss $
Transaction 3
Part I January 15, 20X6	-	100
Part II January 15,20X6	-	50
Net loss		150

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.63 and spot rate on January 15 £1 = $1.64

$Gain on January 15 : $100 = £10,000 = ($1.64 − $1.63)$

Part II

Forward rate on December 31 £1 = $1.645 and spot rate on January 15 £1 = $1.640

$Gain on December 30 : $50 = £10,000 = ($1.645 − $1.640)$

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Answer 4

Question

Chapter 11, Problem 11.23.2P

a

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

a

Expert Solution

Explanation of Solution

Date	Particular	Debit $	Credit $
03/01/X5	Dollars receivable from broker	19,200
	Foreign currency payable to exchange broker		19,200
	(Signed a forward exchange contract for 90 days)

5/30/X5	Foreign currency transaction loss	1,200
	Foreign currency payable to exchange broker		1,200
	(Exchange transaction loss recognized on revaluation of payable)

	Foreign currency payable to exchange broker	20,400
	Foreign currency units		20,400
	(Foreign currency payable recognized)

	Cash	19,200
	Dollars receivable from exchange broker		19,200
	(Cash received from exchange broker)

Foreign currency receivable from broker

$$19,200 = C$0,000 × $.64$

Revaluation of accounts payable to current U.S. dollars

$C$30,000 × $.68 May 30 spot rate$	$20,400
$C$30,000 × $.64 March 1 forward rate$	($19,200)
Foreign currency transaction loss	$1,200

Foreign currency payable to exchange broker recognized

$$20,400 =C$30,000 × $.68 May 30 spot rate$

Dollars received from exchange broker $19,200

b

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X5 in Part I and II are combined

b

Expert Solution

Answer to Problem 11.23.2P

Net loss in 20X5 $1,100

Explanation of Solution

Computation of foreign exchange transaction loss 20X5

	Gain $	Loss $
Transaction 1: May 30 Part I	900
May 30 Part II		1,200

Transaction 2: August 30 Part II	250	250
October 29 Part I		1,000
October 29 Part II	250

Transaction 3: December 31 Part I	200
December 31, Part II		250
Net loss	$1,100

Transaction 1.

Part I

Spot rate on March 1 C$1 = $0.65 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $900 = C$30,000 = ($0.68 − $0.65)$

Part II

Spot rate on March 1 C$1 = $0.64 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $1,200 = C$30,000 = ($0.68 − $0.64)$

Transaction 2.

Part I

Spot rate on July 1 ¥1 = $0.104 and spot rate on October 29 ¥1 = $0.106

$Gain on October 29 : $1,000 = ¥500,000 = ($0.106 − $0.104)$

Part II

Spot rate on July 1 ¥1 = $0.104 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Forward rate on July 1 ¥1 = $0.105 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.65 and spot rate on December 30 £1 = $1.63

$Gain on December 30 : $200 = £10,000 = ($1.65 − $1.63)$

Part II

Forward rate on November 16 £1 = $1.67 and spot rate on December 30 £1 = $1.645

$Gain on December 30 : $250 = £10,000 = ($1.67 − $1.645)$

c

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X6 in Part I and II are combined

c

Expert Solution

Answer to Problem 11.23.2P

Net Loss in 20X6 $150

Explanation of Solution

Computation of foreign exchange transaction loss 20X6

	Gain $	Loss $
Transaction 3
Part I January 15, 20X6	-	100
Part II January 15,20X6	-	50
Net loss		150

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.63 and spot rate on January 15 £1 = $1.64

$Gain on January 15 : $100 = £10,000 = ($1.64 − $1.63)$

Part II

Forward rate on December 31 £1 = $1.645 and spot rate on January 15 £1 = $1.640

$Gain on December 30 : $50 = £10,000 = ($1.645 − $1.640)$

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Answer 5

Chapter 11, Problem 11.23.2P

a

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

a

Expert Solution

Explanation of Solution

Date	Particular	Debit $	Credit $
03/01/X5	Dollars receivable from broker	19,200
	Foreign currency payable to exchange broker		19,200
	(Signed a forward exchange contract for 90 days)

5/30/X5	Foreign currency transaction loss	1,200
	Foreign currency payable to exchange broker		1,200
	(Exchange transaction loss recognized on revaluation of payable)

	Foreign currency payable to exchange broker	20,400
	Foreign currency units		20,400
	(Foreign currency payable recognized)

	Cash	19,200
	Dollars receivable from exchange broker		19,200
	(Cash received from exchange broker)

Foreign currency receivable from broker

$$19,200 = C$0,000 × $.64$

Revaluation of accounts payable to current U.S. dollars

$C$30,000 × $.68 May 30 spot rate$	$20,400
$C$30,000 × $.64 March 1 forward rate$	($19,200)
Foreign currency transaction loss	$1,200

Foreign currency payable to exchange broker recognized

$$20,400 =C$30,000 × $.68 May 30 spot rate$

Dollars received from exchange broker $19,200

b

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X5 in Part I and II are combined

b

Expert Solution

Answer to Problem 11.23.2P

Net loss in 20X5 $1,100

Explanation of Solution

Computation of foreign exchange transaction loss 20X5

	Gain $	Loss $
Transaction 1: May 30 Part I	900
May 30 Part II		1,200

Transaction 2: August 30 Part II	250	250
October 29 Part I		1,000
October 29 Part II	250

Transaction 3: December 31 Part I	200
December 31, Part II		250
Net loss	$1,100

Transaction 1.

Part I

Spot rate on March 1 C$1 = $0.65 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $900 = C$30,000 = ($0.68 − $0.65)$

Part II

Spot rate on March 1 C$1 = $0.64 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $1,200 = C$30,000 = ($0.68 − $0.64)$

Transaction 2.

Part I

Spot rate on July 1 ¥1 = $0.104 and spot rate on October 29 ¥1 = $0.106

$Gain on October 29 : $1,000 = ¥500,000 = ($0.106 − $0.104)$

Part II

Spot rate on July 1 ¥1 = $0.104 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Forward rate on July 1 ¥1 = $0.105 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.65 and spot rate on December 30 £1 = $1.63

$Gain on December 30 : $200 = £10,000 = ($1.65 − $1.63)$

Part II

Forward rate on November 16 £1 = $1.67 and spot rate on December 30 £1 = $1.645

$Gain on December 30 : $250 = £10,000 = ($1.67 − $1.645)$

c

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X6 in Part I and II are combined

c

Expert Solution

Answer to Problem 11.23.2P

Net Loss in 20X6 $150

Explanation of Solution

Computation of foreign exchange transaction loss 20X6

	Gain $	Loss $
Transaction 3
Part I January 15, 20X6	-	100
Part II January 15,20X6	-	50
Net loss		150

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.63 and spot rate on January 15 £1 = $1.64

$Gain on January 15 : $100 = £10,000 = ($1.64 − $1.63)$

Part II

Forward rate on December 31 £1 = $1.645 and spot rate on January 15 £1 = $1.640

$Gain on December 30 : $50 = £10,000 = ($1.645 − $1.640)$

Answer 6

Chapter 11, Problem 11.23.2P

a

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

a

Expert Solution

Explanation of Solution

Date	Particular	Debit $	Credit $
03/01/X5	Dollars receivable from broker	19,200
	Foreign currency payable to exchange broker		19,200
	(Signed a forward exchange contract for 90 days)

5/30/X5	Foreign currency transaction loss	1,200
	Foreign currency payable to exchange broker		1,200
	(Exchange transaction loss recognized on revaluation of payable)

	Foreign currency payable to exchange broker	20,400
	Foreign currency units		20,400
	(Foreign currency payable recognized)

	Cash	19,200
	Dollars receivable from exchange broker		19,200
	(Cash received from exchange broker)

Foreign currency receivable from broker

$$19,200 = C$0,000 × $.64$

Revaluation of accounts payable to current U.S. dollars

$C$30,000 × $.68 May 30 spot rate$	$20,400
$C$30,000 × $.64 March 1 forward rate$	($19,200)
Foreign currency transaction loss	$1,200

Foreign currency payable to exchange broker recognized

$$20,400 =C$30,000 × $.68 May 30 spot rate$

Dollars received from exchange broker $19,200

Answer 7

Chapter 11, Problem 11.23.2P

a

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The entries recorded by M’s foreign currency activities during 20X5 and 20X6.

Answer 8

a

Expert Solution

Explanation of Solution

Date	Particular	Debit $	Credit $
03/01/X5	Dollars receivable from broker	19,200
	Foreign currency payable to exchange broker		19,200
	(Signed a forward exchange contract for 90 days)

5/30/X5	Foreign currency transaction loss	1,200
	Foreign currency payable to exchange broker		1,200
	(Exchange transaction loss recognized on revaluation of payable)

	Foreign currency payable to exchange broker	20,400
	Foreign currency units		20,400
	(Foreign currency payable recognized)

	Cash	19,200
	Dollars receivable from exchange broker		19,200
	(Cash received from exchange broker)

Foreign currency receivable from broker

$$19,200 = C$0,000 × $.64$

Revaluation of accounts payable to current U.S. dollars

$C$30,000 × $.68 May 30 spot rate$	$20,400
$C$30,000 × $.64 March 1 forward rate$	($19,200)
Foreign currency transaction loss	$1,200

Foreign currency payable to exchange broker recognized

$$20,400 =C$30,000 × $.68 May 30 spot rate$

Dollars received from exchange broker $19,200

Answer 9

a

Expert Solution

Answer 10

a

Expert Solution

Answer 11

Expert Solution

Answer 12

b

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X5 in Part I and II are combined

b

Expert Solution

Answer to Problem 11.23.2P

Net loss in 20X5 $1,100

Explanation of Solution

Computation of foreign exchange transaction loss 20X5

	Gain $	Loss $
Transaction 1: May 30 Part I	900
May 30 Part II		1,200

Transaction 2: August 30 Part II	250	250
October 29 Part I		1,000
October 29 Part II	250

Transaction 3: December 31 Part I	200
December 31, Part II		250
Net loss	$1,100

Transaction 1.

Part I

Spot rate on March 1 C$1 = $0.65 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $900 = C$30,000 = ($0.68 − $0.65)$

Part II

Spot rate on March 1 C$1 = $0.64 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $1,200 = C$30,000 = ($0.68 − $0.64)$

Transaction 2.

Part I

Spot rate on July 1 ¥1 = $0.104 and spot rate on October 29 ¥1 = $0.106

$Gain on October 29 : $1,000 = ¥500,000 = ($0.106 − $0.104)$

Part II

Spot rate on July 1 ¥1 = $0.104 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Forward rate on July 1 ¥1 = $0.105 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.65 and spot rate on December 30 £1 = $1.63

$Gain on December 30 : $200 = £10,000 = ($1.65 − $1.63)$

Part II

Forward rate on November 16 £1 = $1.67 and spot rate on December 30 £1 = $1.645

$Gain on December 30 : $250 = £10,000 = ($1.67 − $1.645)$

Answer 13

b

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X5 in Part I and II are combined

Answer 14

b

Expert Solution

Answer to Problem 11.23.2P

Net loss in 20X5 $1,100

Answer 15

b

Expert Solution

Answer 16

b

Expert Solution

Answer 17

Expert Solution

Answer 18

Explanation of Solution

Computation of foreign exchange transaction loss 20X5

	Gain $	Loss $
Transaction 1: May 30 Part I	900
May 30 Part II		1,200

Transaction 2: August 30 Part II	250	250
October 29 Part I		1,000
October 29 Part II	250

Transaction 3: December 31 Part I	200
December 31, Part II		250
Net loss	$1,100

Transaction 1.

Part I

Spot rate on March 1 C$1 = $0.65 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $900 = C$30,000 = ($0.68 − $0.65)$

Part II

Spot rate on March 1 C$1 = $0.64 and spot rate on May 30 C$1 = $0.68

$Gain on May 30: $1,200 = C$30,000 = ($0.68 − $0.64)$

Transaction 2.

Part I

Spot rate on July 1 ¥1 = $0.104 and spot rate on October 29 ¥1 = $0.106

$Gain on October 29 : $1,000 = ¥500,000 = ($0.106 − $0.104)$

Part II

Spot rate on July 1 ¥1 = $0.104 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Forward rate on July 1 ¥1 = $0.105 and spot rate on August 30 ¥1 = $0.1055

$Gain on August 30 : $250 = ¥500,000 = ($0.1055 − $0.105)$

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.65 and spot rate on December 30 £1 = $1.63

$Gain on December 30 : $200 = £10,000 = ($1.65 − $1.63)$

Part II

Forward rate on November 16 £1 = $1.67 and spot rate on December 30 £1 = $1.645

$Gain on December 30 : $250 = £10,000 = ($1.67 − $1.645)$

Answer 19

c

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X6 in Part I and II are combined

c

Expert Solution

Answer to Problem 11.23.2P

Net Loss in 20X6 $150

Explanation of Solution

Computation of foreign exchange transaction loss 20X6

	Gain $	Loss $
Transaction 3
Part I January 15, 20X6	-	100
Part II January 15,20X6	-	50
Net loss		150

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.63 and spot rate on January 15 £1 = $1.64

$Gain on January 15 : $100 = £10,000 = ($1.64 − $1.63)$

Part II

Forward rate on December 31 £1 = $1.645 and spot rate on January 15 £1 = $1.640

$Gain on December 30 : $50 = £10,000 = ($1.645 − $1.640)$

Answer 20

c

To determine

Introduction:

Forward Exchange Contract: A forward exchange contract shows exchange rates for selected major international currencies for one month, three months, and six months forward contracts. An active dealer market is available for companies willing to transact in foreign currencies. The forward rate on a date is not the same as the spot rate, the difference between the spot and the forward rate is known as the spread. The spread gives information about the strength or weakness of currencies.

The amount of foreign currency transaction gain or loss M would report on its income statement in 20X6 in Part I and II are combined

Answer 21

c

Expert Solution

Answer to Problem 11.23.2P

Net Loss in 20X6 $150

Answer 22

c

Expert Solution

Answer 23

c

Expert Solution

Answer 24

Expert Solution

Answer 25

Explanation of Solution

Computation of foreign exchange transaction loss 20X6

	Gain $	Loss $
Transaction 3
Part I January 15, 20X6	-	100
Part II January 15,20X6	-	50
Net loss		150

Transaction 3:

Part I

Spot rate on November 16 £1 = $1.63 and spot rate on January 15 £1 = $1.64

$Gain on January 15 : $100 = £10,000 = ($1.64 − $1.63)$

Part II

Forward rate on December 31 £1 = $1.645 and spot rate on January 15 £1 = $1.640

$Gain on December 30 : $50 = £10,000 = ($1.645 − $1.640)$

Answer 26

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Explanation of Solution

Answer to Problem 11.23.2P

Explanation of Solution

Answer to Problem 11.23.2P

Explanation of Solution

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