On November 1, 2014, Ross Corporation, a calandar-year U.S. Corporation, investe

Question

On November 1, 2014, Ross Corporation, a calandar-year U.S. Corporation, invested in a purely
?speculative contact to purchase 1 million euros on January 30, 2015, from Trattoria Company, an
?Italian borkerage firm. Ross agreed to purchase 1,000,000 euros from Trattoria at a fixed price of
?$1.420 per euro. Trattoria agreed to transmit 1,000,000 euros to Ross on January 30, 2015.
?Net settlement is not permitted. The spot rates for euros are:

?Nov 01, 2014 1 euro-$1.415
?Dec 31, 2014    1 euro-$1.395
?Jan 30, 2015    1 euro-$1.410

?The 30 day future rate for euros on December 31, 2014 was $1.405. Prepare the General Journal entries that
?Ross would record on November 1, December 31, and January 30.

?Please help me. Thank you!

Explanation / Answer

Date Accounts Title and Explanation Debit credit Nov 1, 2014 Contract Receivable (euro) $      1,420,000 Contract Payable $      1,420,000 (1,000,000 x $1.420/euro) Dec 31, 2014 Exchange Loss $           15,000 Contract Receivable (euro) $           15,000 {1,000,000 x ($1.405 - $1.420)} Jan 30, 2015 Contract Receivable (euro) $             5,000 Exchange Gain $             5,000 {1,000,000 x ($1.410 - $1.405)} Cash (euro) $      1,410,000 Contract Payable $      1,420,000 Cash $      1,420,000 Contract Receivable (euro) $      1,410,000

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