On Oct 1, ABC corp sold equipment to John Sales Corp for 80,000 UK Pounds. 

Example: On Oct 1, ABC corp sold equipment to 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 on Jan 5.
Spot rates and forward rates for the relevant dates are given below:
Dates Spot Rates AR Forward Rates FC Payable
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 AR 100,000
    Sales Rev 100,000
01-Oct  Dollars Rec 102,400  (fixed)
       FC Payable 102,400
31-Dec AR 4,000 (104000 – 100,000) D
     Transaction Gain 4,000 E
A
31-Dec Transaction Loss 3,200
         FC Payable $3,200
05-Jan AR $4,800 Dates Spot Rates AR
      Transaction gain 4,800 01-Oct $1.25 $100,000
31-Dec $1.30 $104,000
05-Jan Transcation Loss 3,200 05-Jan $1.36 $108,800
         FC Payable $3,200
                         AR
05-Jan Investment in FC 108,800 100,000
       AR 108,800 4,000
4,800
05-Jan FC Payable 108,800 108,800
      Investment in FC 108,800
05-Jan Cash 102,400 31-Dec 4000
      Dollars Rec 102,400 05-Jan 4,800
8,800
Q1: How much cash would we have rceeived if we did not enter into the forward contract? $108,800
Q2:  What is the overall gain or loss in the entire set of transactions? Ans = Gain of 2,400  (102,400 – 100,000) Net Gain   = 8,800 – 6,400   = 2,400
Q3: What would have been our gain if we did not enter into the forward contract? Gain  = 108,800 – 100,000 = 8,800
Q4: in this problem, how much was our loss because of entering into the forward contract? 8,800 – 2,400  = 6,400
If there was no forward contract and the spot rates were as follows, what is the gain or loss in this situation? Ans: $28,000