Question
PROBLEM 1 On October 17, 2017, KENT Inc. purchased from a Thailand firm an inventory costing 10,000 baht. Payment is due on January 15, 2018.
PROBLEM 1
On October 17, 2017, KENT Inc. purchased from a Thailand firm an inventory costing 10,000 baht. Payment is due on January 15, 2018. Also on October 17, KENT entered into a foreign exchange forward to buy 10,000 baht on January 15, 2018.
10/17/17 12/31/17 1/15/18
Spot rate P1.30 P1.42 P1.40
Forward rate P1.30 P1.42 P1.40
1. The December 31, 2017 profit and loss statement, foreign exchange gain or loss due to hedged item amounted to:
a. P200 gain c. P1,200 gain
b. P1,000 loss d. P1,200 loss
2. The December 31, 2017 profit and loss statement, foreign exchange gain or loss due to hedging instrument-forward contract:
a. P200 gain c. P1,200 gain
b. P1,000 loss d. P1,200 loss
PROBLEM 2
On September 1, 2017, CLARK Company purchased machine parts from LYNDON Company for 6,000,000 Hong Kong dollars to be paid on January 1, 2018. The exchange rate on September 1 is HK$7.7=P1. On the same date, CLARK enters into a forward contract and agrees to purchase HK$6,000,000 on January 1, 2018, at the rate of HK$7.7=P1. On December 31, 2017 and on January 1, 2018, the exchange rate is HK$8.0=P1.
3. What is the gain or loss on the forward contract on December 31, 2017?
a. P29,221 gain c. P1,800,000 gain
b. P29,221 loss d. P1,800,000 loss
4. What is the notional value of the HK$ forward contract?
a. P0 c. P750,000
b. P29,221 d. P779,221
PROBLEM 3
5. CHRISTIAN Company ordered parts costing 100,000 baht for a foreign supplier on May 12 when the spot rate was P0.24 per baht. A one-month forward contract was signed on that date to purchase 100,000 baht at a forward rate of P0.25 per baht. On June 12, when the parts were received and payment was made, the spot rate was P0.28 per baht. At what amount should inventory be reported?
a. P0 c. P24,200
b. P28,000 d. P25,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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