On December 1, 2019, King Company exported equipment that had cost $210,000 to a Brazilian company for
Question:
On December 1, 2019, King Company exported equipment that had cost $210,000 to a Brazilian company for 1,000,000 real. The account is to be settled on January 31, 2020. King Company is a calendar-year company and uses a perpetual inventory system. Direct exchange rates were:
Spot Rate
December 1 ........................... $.4441
December 31 ........................ .3690
January 31 ............................. .4421
Required:
A. Prepare journal entries to record the exporting transaction, adjust the accounts on December 31, and settle the account on January 31.
B. What effect did changes in the exchange rate have on income in 2019 and 2020?
C. Assume the facts given above, except that on December 1, King Company entered into a forward contract to sell 1,000,000 Real on January 31 for $.4451 per real. Prepare the journal entries needed in 2019 and 2020 to record the forward contract and settle the accounts. The forward rate on December 31 for January 31 delivery was $.3810.
D. What is the combined effect on income in 2019 and 2020 from the exporting transaction and the forward contract?
Exchange RateThe value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
Part A Dec 1 Accounts Receivable 444100 Sales 1000000 4441 444100 1 Cost of Goods Sold 210000 Inventory 210000 31 Transaction Loss 75100 Accounts Rece...View the full answer
