All problems worth 10 points. In-class will be 25 MC problems worth 2 points eac
ID: 2571437 • Letter: A
Question
All problems worth 10 points. In-class will be 25 MC problems worth 2 points each. 1. On December 1, 2017, Scott Company sold merchandise to a foreign entity for 200,000 euros (). Scott will receive the payment on March 1, 2018. On December I", Scott immediately entered into a forward contract to sell €200,000 at a forward rate of €1 = $1.35. On December 1, 2017, the spot rate was $1.33 per Euro. Other exchange rates were as follows: December 31,20017 March 1, 2018 Spot Rate $1.34 1/33 Forward rate for March 1,2018 $1.36 Required 1) Prepare all journal entries related to Scott Company's from December 1, 2016, through March 1, 2017, assuming the fiscal year ends on December 31, 2018 assuming this a Cash Flow Hedge. 2) Prepare all journal entries related to Scott Company's from December 1,2016, through March 1, 2017, assuming the fiscal year ends on December 31, 2018 assuming this a Fair Value Hedge. 3) Instead of entering into a Forward Contract, Scott purchased an Option at $.10 (10 cents) per Euro to sell the 200,000 on March 1, 2018 and receive the cash. Prepare all journal entries related to Scott Company's from December 1, 2016, through March 1, 2017, assuming the fiscal year ends on December 31, 2018 assuming this a Cash Flow Hedge. Will Scott exercise the option (your journal entries are dependent on the answer to this question)?Explanation / Answer
1)
Journal Entries Date Particulars Dr. ($) Cr.($) Dec 1, 2017 Accounts Receivable 266000 Sales 266000 (being Credit sales of amount 200000 Euros, payment due March 1, 2018 at forward rate of $ 1.33) Dec. 31, 2017 Accounts Receivable 2000 Profits on Exchange Rates 2000 Derivative 2000 Gain on Derivative 2000 (being gain on exchange rate fluctuation) March 1, 2018 Cash 270000 Profits on Exchange Rates 2000 Accounts Receivable 268000 Gain on Derivative 4000 (being settlement of Accounts Receivable and Forward Contract)