475 Transaction Sept. 5 Sept. 14 2. Transaction gain (loss) September 30, 2020, year-end: 3. Sales 4. Transaction gain (loss) 5. Net effect on income for both years (Sum lines 1-4) 6. Cash received on settlement date I 12-2 Importing/Exporting Transactions with a Forward Contract Hedge LO 6 Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company uses a periodic inventory system and is on a calendar-year basis. All exchange rates are direct quotations. Dec. 1 Crystal Exporting purchased merchandise from Chang's Ltd., a Hong Kong manufac- turer. The invoice was for 210.000 Hong Kong dollars, payable on April 1. On this same date, Crystal Exporting acquired a forward contract to buy 210.000 Hong Kong dollars on April 1 for $.1314. Dec 29 Crystal Exporting sold merchandise to Zintel Retailers for 120.000 Hong Kong dollars, receivable in 90 days. No hedging was involved. April 1 Crystal Exporting received 120,000 Hong Kong dollars from Zintel Retailers. 1 Crystal Exporting submitted full payment of 210,000 Hong Kong dollars to Chang's Ltd., after obtaining the 210,000 Hong Kong dollars on its forward contract. Spot rates and the forward rates for the Hong Kong dollar were as follows: Dec. 1 Dec. 29 Dec. 31 April 1 Spot Rate $.1265 .1240 .1259 .1430 Forward Rate for April 1 Delivery $.1314 .1305 .1308 Required: A. Prepare journal entries for the transactions including the necessary adjustments on December 31. B. Explain the income statement treatment given to any transaction gains and losses recognized at December 31. -3 Foreign Trade Journal Entries and Forward Contract Hedge LO 6 On December 1, 2019, King Company exported equipment that had cost $210,000 to a Bra- zilian 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