d. Reclassification of Oler comp In May, our company sells $675,000 of inventory

Question

d. Reclassification of Oler comp In May, our company sells $675,000 of inventory to a customer in France. The been over-sold and is likely to rebound during the next 90 days, thus lowering the Stis that the ss e a loergil curPency 43. Use of futures contracts to hedge a receivable denominated iOP invoice is written for 500,000, and payment is due in 90 days. Our company feels theording receivable. The current futures price for 90-day delivery of $1.30 reflects our view. Sine valet days. When the receivable is collected in 90 days, the exchange rate at that date is $1.27 the invoice be stated in Euros (6), The exchange rate on the date of sale is $1.35:1dean lowering the SUS equivalen of flects our view. Since we feel th e SUS is likely to strengthen even more, we purchase a forward contract to sell Assume the following data relating to the spot and forward rates for the SUS vis-à-vis the Spot Rate Forward Rate $1.30:1 $1.28:1 July. $1.27:1 n/a Prepare the journal entries to record the following: a. Account receivable and sale (ignore cost of goods sold) b. Adjusting entries on June 30 c. Collection of the account receivable in July

Explanation / Answer

Accounts Receivable A/c

(Euro 500,000 * $ 1.35 per Euro)

Loss on Receivable due rate flactuation

(Euro 500,000 * ($ 1.35 - $ 1.30) Per Euro)

C

Bank A/c

(Euro 500,000 * $ 1.30 per euro)

Sr.No Particulars Debit (In $) Credit (In $) A.

Accounts Receivable A/c

(Euro 500,000 * $ 1.35 per Euro)

$ 675,000 To sales A/c $ 675,000 B.

Loss on Receivable due rate flactuation

(Euro 500,000 * ($ 1.35 - $ 1.30) Per Euro)

$ 25,000 To Account Receivable A/c $ 25,000 (Being Loss of Account Recevable of $ 0.05 per euro because the Future contract rate at company sale and the Spot rate of June 30 is the same and the actual sale rate is $ 1.35 per euro but as on june 30 company recevie only $ 1.30)

C

Bank A/c

(Euro 500,000 * $ 1.30 per euro)

$650,000 To Account Receivable $650.000 ( Being the future Contract is of $ 1.30 per euro same amount Company recevied because apot rate is $ 1.27 amd we sold euro in future market at $ 1.30 so ther is gain of $ 0.03 per euro)

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.