Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 13- 11 P13-11 Importing and Exporting Transactions; Hedges of Exposed Foreign Currency Asset and Lia bility Positions; Identifiable Foreign Currency Commitment; Speculative Forward Exchange

Problem 13- 11image text in transcribedimage text in transcribed

P13-11 Importing and Exporting Transactions; Hedges of Exposed Foreign Currency Asset and Lia bility Positions; Identifiable Foreign Currency Commitment; Speculative Forward Exchange Contract; Intervening Balance Sheet Date Reynolds Corporation has extensive dealings with foreign suppliers and buyers. During the first six months of the fiscal year 19X5, Reynolds reported the following foreign transactions, all of which are denominated in the local currency of the respec- tive foreign firm. Reynolds prepares financial statements on June 30 and December 31 of each year January I Sold merchandise to Company T of Denmark for 200,000 kroner; payment is due in 60 days. The exchange rate at the time was S.15 per krone. On this date. Reynolds entered into a forward exchange contract with a local bank to sell 200,000 kroner to be delivered on March 1. The exchange rate for future delivery was S.14. Signed an agreement with Company U of India to purchase merchandisc for 500,000 rupees; merchandise is to be delivered on August 1The spot rate for the rupee was $.18. To avoid the risk of fluctuation in foreign exchange rates, Reynolds entered into a forward cxchange contract to re ceive 500,000 rupees on August at a curent forward exchange rate of $.19. The forward exchange contract qualifies as a hedge of an identifiable foreign currency commimen. Any premium or discount on the forward exchange contract is deferred. 15 25 Purchased equipment from Company V of Canada for 50.000 Canadian dollars when the exchange rate was S.98 for the Canadian dollar. The March Received payment from Company T of Denmark. Delivered 200,000 kro- ner to the bank in accordance with terms of the forward exchange contract (January 1 transaction). The spot rate for the krone on March was S.16. 25 Paid in full Company V of Canada. The exchange rate for the Canadian May Entered into a forward exchange contract to speculate in British pounds. Terms of the forward exchange contract call for Reynolds to purchase 30,000 British pounds for delivery in three months. The current spot rate for the British pound was $1.75, and the three-month future rate was $1.72. 20 Sold merchandise to Company W of France for 200,000 French francs

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

How would we like to see ourselves?

Answered: 1 week ago