Question
On December 10, 2017, Daisy Foods, a U.S. company, anticipates sales in the amount of A$25,000,000 to an Australian customer, payment in Australian dollars to
On December 10, 2017, Daisy Foods, a U.S. company, anticipates sales in the amount of A$25,000,000 to an Australian customer, payment in Australian dollars to be received at the end of May 2018. On December 10, 2017, Daisy Foods enters a forward contract for the sale of A$25,000,000 for a total price of $22,097,500 on May 31, 2018. The forward contract qualifies as a hedge of the forecasted sale. On March 1, 2018, Daisy delivered the merchandise to the Australian customer. On May 31, 2018, Daisy received A$25,000,000 from the customer, and delivered it to the broker to close the forward contract. Daisy Foods’ accounting year ends January 31. Relevant exchange rates ($/A$) are as follows:
Spot rate | Forward rate for delivery May 31, 2018 | |
---|---|---|
December 10, 2017 | $ 0.8841 | $ 0.8839 |
January 31, 2018 | 0.8832 | 0.8830 |
March 1, 2018 | 0.8798 | 0.8796 |
May 31, 2018 | 0.8750 | -- |
Prepare the journal entries to record the above events, including January 31, 2018 adjusting entries.
General Journal | |||
---|---|---|---|
Date | Description | Debit | Credit |
01/31/18 | AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
To record increase in value of forward contract. | |||
03/01/18 | Investment in forward contract | 85,000 | |
Other comprehensive income | 85,000 | ||
To record increase in value of forward contract. | |||
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
To record delivery of merchandise. | |||
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
To reclassify accumulated other comprehensive income. | |||
05/31/18 | AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
To adjust accounts receivable. | |||
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
To record increase in value of forward contract. | |||
Foreign currency | 21,875,000 | ||
Accounts receivable | 21,875,000 | ||
To record payment from the customer. | |||
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
Investment in forward contract | Answer | Answer | |
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gain | Answer | Answer | |
To record settlement of the forward contract. |
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