Question
On May 20, when the exchange rate was $1.35/, a U.S. company purchased merchandise from a U.K. supplier for 10,000 and paid for the merchandise
On May 20, when the exchange rate was $1.35/, a U.S. company purchased merchandise from a U.K. supplier for 10,000 and paid for the merchandise on June 5, when the exchange rate was $1.38/. On August 15, when the exchange rate was $1.13/, the U.S. company sold the merchandise to a customer in Belgium at an invoice price of 16,000. On September 6, when the exchange rate was $1.15/, the U.S. company received payment of 16,000 from the Belgian customer. The U.S. companys accounting year ends December 31. The U.S. company reports sales revenue in the amount of:
Select one:
a. $21,600
b. $18,400
c. $16,000
d. $18,080
Hedging Exposed Liability Position
On March 15, 2023, Hunt Brands, a U.S. company, purchased merchandise from a South African company at a price of R1,000,000, payable in two months in rands. To hedge its exposed liability position, Hunt entered a forward contract for purchase of R1,000,000 on May 15, 2023. On May 15, Hunt closed the forward contract and used the rands to pay its supplier. The merchandise was sold to a U.S. customer for $110,000 in cash on June 5, 2023. Hunts accounting year ends December 31.
Exchange rates ($/R) are as follows:
Spot rate | Forward rate for delivery May 15, 2023 | |
---|---|---|
March 15, 2023 | $0.0650 | $0.0651 |
May 15, 2023 | 0.0654 | -- |
Required
a. Prepare the journal entries Hunt Brands made on March 15, May 15, and June 5, 2023. Assume Hunt records cost of goods sold at the time of sale.
Date | Description | Debit | Credit | |
---|---|---|---|---|
3/15/23 | AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | |
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
To record goods purchased. | ||||
5/15/23 | AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | |
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
To restate payable at current spot rate. | ||||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
To restate forward contract to current fair value. | ||||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
Cash | Answer | Answer | ||
To record the settlement of the forward contract. | ||||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
To record payment to the supplier. | ||||
6/5/23 | AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | |
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
To record sale to U.S. customer. | ||||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
AnswerAccounts payableCashCost of goods soldExchange gainExchange lossForeign currencyInventoryInvestment in forward contractSales revenue | Answer | Answer | ||
To record cost of goods sold on sale. |
b. Calculate the cash gain or loss realized by Hunt Brands by hedging compared with not hedging.
$Answer Answergainloss
On November 30, 2023, a U.S. company purchased merchandise on credit from a Swiss supplier at an invoice price of CHF1,000, when the exchange rate was $1.08/CHF. On December 31, 2023, the companys year-end, the exchange rate was $1.09/CHF. On February 1, 2024, the company purchased the CHF1,000 for $1.086/CHF and paid the invoice. On March 15, 2024, when the exchange rate was $1.083, the company sold the merchandise to a U.S. customer for $2,000. At what amount should the merchandise be reported on the U.S. companys December 31, 2023 balance sheet?
Select one:
a. $1,086
b. $1,083
c. $1,080
d. $1,090
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