Part III: (\"Forecasted\" Transaction) U.S. Corporation planned on November 1, 2
ID: 2557104 • Letter: P
Question
Part III: ("Forecasted" Transaction) U.S. Corporation planned on November 1, 2017 to sell two machines to International Company, for 750,000 foreign currency units (FCU). The machines were to be delivered and the amount llected on March 1, 2018. In order to hedge its "forecasted" transaction, U.S. entered, on November 1, 2017, into a forwa rd contract to sell 750,000 FCU on March 1, 2018. The forward contract met all conditions for hedging a foreign currency "forecasted" transaction. Selected exchange rates for FCU at various dates were as follows: Forward Rate (Delivery on 3/1/2018) 0.9535 0.9515 Date Spot Rate 11/1/2017 S0.9540 12/31/2017 S0.9452 3/1/2018 $0.9626 Required: Prepare all journal entries relative to the above on the following dates: 1. November 1, 2017 2. Year-end adjustments on December 31, 2017 3.March 1, 2018. (nclfee)Explanation / Answer
SOLUTION Date Particulars Debit Credit 2017 $ $ 1 Nov-01 International Co A/c Dr. 715500 To Machines A/c 715500 (Being Machines sold) (used spot rate 0.9540) Nov-01 Forward Contract Receivables A/c Dr. 715125 Used Forward rate 0.9535 Forward Cotract Premium A/c Dr. 375 To Forward Contract Payable /c 715500 Used Spot rate 0.9540 (Being Entered into Forward contract) 2 Dec-31 Foreign Exchange Loss A/c Dr. 6600 used difference of spot rate (0.9540-0.9452)*750000 To International Co 6600 (Being Exchange loss recognized) 3 Nov-01 Bank A/c Dr. 721950 used spot rate 0.9626 Forward Contract Payable A/c Dr. 715500 To Profit on Forward Contract A/c 13425 difference balancing figure To International Co 708900 To Forward Contract Receivables A/c 715125 (Being Entered into Forward contract)