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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, 20180.88320.8830
March 1, 20180.87980.8796
May 31, 20180.8750--

Prepare the journal entries to record the above events, including January 31, 2018 adjusting entries.

General Journal
DateDescriptionDebitCredit
01/31/18AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
To record increase in value of forward contract.
03/01/18Investment in forward contract85,000
Other comprehensive income85,000
To record increase in value of forward contract.
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
To record delivery of merchandise.
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
To reclassify accumulated other comprehensive income.
05/31/18AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
To adjust accounts receivable.
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
To record increase in value of forward contract.
Foreign currency21,875,000
Accounts receivable21,875,000
To record payment from the customer.
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
Investment in forward contractAnswerAnswer
AnswerInvestment in forward contractOther comprehensive incomeForeign currencyCashAccounts receivableSales revenueExchange lossExchange gainAnswerAnswer
To record settlement of the forward contract.

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