On Oct 1, ABC corp purchased equipment from John Sales Corp for 80,000 UK Pounds. Payment will be made on Jan 5. On Oct 1, ABC Corp also entered into a forward contract toÂ
On Oct 1, ABC corp purchased equipment from John Sales Corp for 80,000 UK Pounds. Payment will be made on Jan 5. On Oct 1, ABC Corp also entered into a forward contract to
| ____________ (buy/sell) 80,000 Pounds at a rate of $1.28 per pound. | |||||
| Assume that accounting year ends on Dec 31. | |||||
| Spot rates and forward rates for the relevant dates are given below: | |||||
| Dates | Spot Rates | AP | Forward Rates | FC Receivable | |
| 01-Oct | $1.25 | $100,000 | $1.28 | $102,400 | |
| 31-Dec | $1.30 | $104,000 | $4,000 | $1.32 | $105,600 |
| 05-Jan | $1.36 | $108,800 | ($4,800) | $1.36 | $108,800 |
| Required: Prpeare all the necessary journal entries for the purchase of equipment, the forward contract and the settlement on Jan 5. | |||||
| 01-Oct | Â Equipment | 100,000 | |||
| Â Â Â Â Â Â AP | 100,000 | ||||
| 01-Oct | Â FC Rec | 102,400 | |||
| Â Â Â Â Â Â Dollars Payable | 102,400 | Â (this is consant) | |||
| 31-Dec | Tr Loss | 4,000 | (104000 – 100,000) | ||
| Â Â Â Â AP | 4,000 | ||||
| 31-Dec | Â FC Rec | $3,200 | |||
| Â Â Â Transaction Gain | 3,200 | ||||
| 05-Jan | Â Transaction Loss | $4,800 | |||
| Â Â Â Â Â Â AP | 4,800 | ||||
| 05-Jan | FC Rec | $3,200 | |||
| Â Â Â Â Â Â Â Transaction Gain | 3,200 | ||||
| 05-Jan | Dollars Payable | 102,400 | |||
| Â Â Â Â Â Cash | 102,400 | ||||
| 416800 | |||||
| 05-Jan | Investment in FC | 108,800 | |||
| Â Â Â Â FC Receivable | 108,800 | ||||
| 05-Jan | AP | 108,800 | |||
| Â Investment in FC | 108,800 | ||||
