Foreign Exchange Gains and Losses With Hedging. Huseman Enterprises buys and sells products in the international marketplace.
Question:
Foreign Exchange Gains and Losses With Hedging. Huseman Enterprises buys and sells products in the international marketplace. As a U. S. corporation, Huseman uses the U. S. dollar as its functional currency. However, all billings are denominated in a foreign currency. The following transactions are typical of the company's business activities:
(a) Sold merchandise to an Italian company for \(\mathrm{L} 2,000,000\) when the exchange rate for lira was \(\$ 0.00052\). Huseman also sold L1,000,000 for future delivery at \(\$ 0.00052\).
(b) Received payment from the Italian company in
(a) when the exchange rate for the lira was \(\$ 0.0006\). The lira sold in
(a) are delivered to the exchange broker.
(c) Purchased merchandise from a British company for \(£ 5,000\) when the exchange rate for pounds was \(\$ 1.50\). Concurrently, the company purchased \(£ 5,000\) for future delivery at \(\$ 1.48\).
(d) Received the pounds in
(c) from the exchange broker. The company then paid the British company for the merchandise purchased in
(c) using these pounds. The exchange rate for pounds was \(\$ 1.55\).
(e) Sold merchandise to a Mexican company for \(\mathrm{M} \$ 100,000\) when the exchange rate for pesos was \(\$ 0.35\)
(f) Purchased merchandise from another Mexican company for \(\mathrm{M} \$ 200,000\) when the exchange rate for the peso was \(\$ 0.33\).
\section*{Required:}
Calculate the exchange gains or losses associated with each of the transactions. The last two transactions are still open. Assume that on the date you are making your calculations, the exchange rate for the peso was \(\$ 0.32\).
Step by Step Answer:
Managerial Accounting
ISBN: 9780538842822
9th Edition
Authors: Harold M. Sollenberger, Arnold Schneider, Lane K. Anderson