ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 11.9E
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.
Forward contract: It is the contract between the purchase and the seller where they agreed to buy or sell an asset at a fixed price in the future on a specific date.
The recording of the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
3.)
Merit & Family purchased engines from Canada for 40,000 Canadian dollars on March 10 with payment due on June 8. Also, on March 10, Merit acquired a 90-day forward contract to purchase 40,000 Canadian dollars at C$1 = $0.50. The forward contract was acquired to manage Merit & Family’s exposed net liability position in Canadian dollars, but it was not designated as a hedge. The spot rates were
March 10
C$1 = $0.49
June 8
C$1 = $0.52
Required:
Prepare journal entries for Merit & Family to record the purchase of the engines, entries associated with the forward contract, and entries for the payment of the foreign currency payable.
1
Record the foreign purchase of the engines.
2
Record the entry for the 90-day forward exchange contract signed to receive Canadian dollars.
3
Record the entry to revalue the foreign currency receivable to the current equivalent U.S. dollar value.
4
Record the entry to revalue the foreign currency accounts payable to the…
do bot give solution in image format
Prepare jouranal entries to record the transaction
Chapter 11 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
Ch. 11 - Prob. 11.1QCh. 11 - Prob. 11.2QCh. 11 - The U.S. dollar strengthened against the European...Ch. 11 - Prob. 11.4QCh. 11 - Prob. 11.5QCh. 11 - How are assets and liabilities denominated in a...Ch. 11 - Prob. 11.7QCh. 11 - Prob. 11.8QCh. 11 - Prob. 11.9QCh. 11 - Distinguish between an exposed net asset position...
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...
Knowledge Booster
Similar questions
- Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 20x1 for £200,000 with payment required on April 1, 20x2. Relevant exchange rates are: October 1, 20x1 April 1, 20x2 Spot rate December 31, 20x1 1.86 $1.87 O Liability $1,880 O Asset $1,880 O Asset $3,880 O Liability $3,880 1.90 Forward rate (to 4/1/x2) $1.85 $1.84 The discount factor corresponding to the company's incremental borrowing rate for 3 months is 0.94. Assume that Amazing Corporation enters a forward contract on October 1, 20x1 to sell £200,000 six months hence, on April 1, 20x2. How should Amazing Corporation report the forward contract on its December 31, 20x1 financial statements?arrow_forward1. On October 1, 2021, Arvene Corp. purchased goods from US based corporation worth 50,750 US dollars. Payment is due in 120 days on January 30, 2022. In view of the transaction, Arvene Corp. entered into a forward contract to buy 50,750 US dollars from PNB in 120 days. The relevant rates are as follows: 10/01/21 12/31/21 01/30/22 Spot rate P 53 P 55 P 53.50 Forward rate 54 56.50 55 How much is the net forex loss on settlement date?arrow_forwardMyway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9, with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: January 1 (1 C$ = $0945); March 1 (1C$ = $0.930). Based on the preceding information, the entry to revalue foreign currency payable to current U.S. dollar value on March 1 will have: A. a credit to Foreign Currency Transaction Gain for $1,500. B. a debit to Foreign Currency Transaction Loss for $2,500. C. a debit to Foreign Currency Transaction Loss for $1,500. D. a credit to Foreign Currency Transaction Gain for $1,000.arrow_forward
- (a) Raja Bhd is a public company, and its functional currency is the Ringgit Malaysia (RM). Recently it has purchased a foreign subsidiary, PT Mahkota, whereby the functional currency of the entity is the Rupiah. Raja Bhd purchased 80% of the equity shares of PT Mahkota on 1 October 2021 for 172 million Rupiah. The carrying amount of the net assets of PT Mahkota at that date was 180 million Rupiah. The fair value of the net assets at that date was 200 million Rupiah. At the year end on 31 December 2021, the goodwill was tested for impairment, and this review indicated that it had been impaired by 3.6 million Rupiah.arrow_forwardprepare table showing gain/loss on the hedging instrument and provide journal entries for paradise ltd. to account for the hedge.arrow_forwardOn December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to purchase 200,000 Canadian dollars (C$). 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.arrow_forward
- On October 1, 2021, A Corp. purchased goods from US based corporation worth 60,500 US dollars. Payment is due in 120 days on January 30, 2022. In view of the transaction, Active Corp. entered into a forward contract to buy 60,500 US dollars from PNB in 120 days. The relevant rates are as follows: 10/01/21 12/31/21 01/30/22 Spot rate P 53 P 55 P 53.50 Forward rate 54 56.50 55How much is the net forex loss on settlement date?arrow_forwardMelton Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9, with settlement to be in 60 days. On the same date, Melton entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $0.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: January 1, 20X9 March 1, 20X9 1 C$=$0.945 1 C$=$0.930 Based on the preceding information, the entry to revalue foreign currency payable to current U.S. dollar value on March 1 will have: O a credit to Foreign Currency Transaction Gain for $1,000. O a credit to Foreign Currency Transaction Gain for $1,500. O a debit to Foreign Currency Transaction Loss for $1,500. O a debit to Foreign Currency Transaction Loss for $2,500.arrow_forwardForeign currency hedge, firm purchase commitment. On October 2, 2016, Flx, a US company, entered into a forward contract to purcahse 50,000 euros for delivery in 180 days at a rate of $0.6350. The forward contract is a derivative instrument hedging an identifiable foreign currency purchase commitment for inventory as defined in ASC Topic 815. The spot rate for euros on October 2, 2016 was $0.6250. Spot rates and forward rates for euros on December 31, 2016 are as follows: December 31, 2016 March 31, 2017 Spot Rate $0.6390 $0.6560 Forward Rates 30-day futures $0.6410 $0.65750 90-day futures $0.6420 $0.6615 180-day futures $0.6450 $0.6680 Required: Prepare Journal Entries 1. Record the forward contract on…arrow_forward
- Forward exchange contract designated as a fair value hedge of a foreign-currency-denominated firm commitment to sell inventory, weakening SUS Our U.S.-based company enters into a "firm commitment" with Malta-based retailer on November 10, 2018. The firm commitment requires our company to sell 70,000 units of an inventory item costing €9.00 each to the Maltese company. Our company is contractually committed to ship the inventory (i.e., title transfers) on February 10, 2019, with payment in Euros on the same date. Our company does recurring business with the Maltese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 10, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 10, 2019) to mitigate the risk of exchange rate fluctuation. Our company's functional currency is the U.S. dollar and our forward exchange contract qualifies as a fair value hedge. The…arrow_forwardForward exchange contract designated as a fair value hedge of a foreign-currency-denominated accounts payable, strengthening $US On October 20, 2018, our company purchased from a company located in Slovenia 100,000 units of a product at a purchase price of €7.00 per unit. Our company is required to pay for the merchandise in Euros (€). The exchange rate on the date of purchase is $1.48:€1, and the due date for our payment is January 20, 2019. To mitigate the risk of exchange rate fluctuations between the purchase date and the payment date, on October 20, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to buy €700,000 on January 20, 2019, while we lock in the $US we will pay for the Euros on that date at the forward rate of $1.45:€1 (i.e., the forward rate on October 20, 2018, for settlement on January 20, 2019). Assume this derivative qualifies as a fair value hedge, and our company’s functional currency and reporting…arrow_forwardForward exchange contract designated as a fair value hedge of a foreign-currency-denominated firm commitment to sell inventory, weakening $US Our U.S.-based company enters into a “firm commitment” with Malta-based retailer on November 10, 2018. The firm commitment requires our company to sell 70,000 units of an inventory item costing €9.00 each to the Maltese company. Our company is contractually committed to ship the inventory (i.e., title transfers) on February 10, 2019, with payment in Euros on the same date. Our company does recurring business with the Maltese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 10, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 10, 2019) to mitigate the risk of exchange rate fluctuation. Our company’s functional currency is the U.S. dollar and our forward exchange contract qualifies as a fair value hedge. The…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning