Question
Completed Transaction, Forward Contract . For the next five questions, on November 1, 20x5, our company purchased goods from an overseas company. Payment is due
Completed Transaction, Forward Contract. For the next five questions, on November 1, 20x5, our company purchased goods from an overseas company. Payment is due on February 1, 20x6. The purchase price was 1,000,000 FC units. As protection against FC losses, we entered into a forward contract to buy 1,000,000 FC units on February 1, 20x6.
Date |
Spot rate | 30-day forward rate | 90-day Forward rate |
November 1, 20x5 | $0.40 | $0.38 | $0.37 |
December 31, 20x5 | $0.38 | $.39 | $.38 |
February 1, 20x6 | $0.35 | -- | -- |
7 The amount payable to the foreign exchange broker is:
a. $350,000.
b. $360,000.
c. $370,000.
d. $380,000.
e. None of the above.
8. On December 31, 20x5, the FC forward contract should be recorded as:
a. Asset $19,802.
b. Asset $11,680.
c. Liability $19,802.
d. Liability $11,680.
e. None of the above.
9. For the year ended December 31, 20x6, what is the income statement amount associated with the forward contract (only the contract; ignore the FC receivable)?
a. $16,440 gain.
b. $16,440 loss.
c. $39,802 gain.
d. $39,802 loss.
e. None of the above.
10. For the year ended December 31, 20x6, the second year, what is the income statement amount associated with the FC payable? (Ignore the forward contract.)
a. $0 income/gain.
b. $30,000 expense/loss.
c. $30,000 income/gain.
d. $40,000 expense/loss.
e. $40,000 income/gain.
f. None of the above.
11. For 20x6, the second year, the income associated with both the FC payable and forward contract is:
a. Gain $9,802.
b. Loss $9,802.
c. Loss $39,802.
d. Gain $39,802.
e. None of the above.
I need solutions .(please)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started