On 1 November 2022, Long Ltd enters a contract to buy inventory from an overseas supplier, with the inventory to be delivered in six months' time. A sum of US$1 000000 is payable on delivery of the inventory. Long Ltd does not want to be exposed to potential losses associated with changes in the exchange rate. As a result, Long Ltd takes out a forward rate contract with Board Bank to purchase US$1 000000 in six months' time at an exchange rate of A$1.00 = US$0.70. REQUIRED Explain who now bears the risks associated with changes in the exchange rate, and calculate how much Long Ltd will ultimately pay for the invento
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On 1 November 2022, Long Ltd enters a contract to buy inventory from an overseas supplier, with the inventory to be delivered in six months' time. A sum of US$1 000000 is payable on delivery of the inventory. Long Ltd does not want to be exposed to potential losses associated with changes in the exchange rate. As a result, Long Ltd takes out a forward rate contract with Board Bank to purchase US$1 000000 in six months' time at an exchange rate of A$1.00 = US$0.70.
REQUIRED Explain who now bears the risks associated with changes in the exchange rate, and calculate how much Long Ltd will ultimately pay for the invento
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- Assume that Gilligan Ltd enters into a contract to buy inventory from an overseas supplier. On1 February 2023 it acquires the material at a cost of US$500,000 payable in two months’ time.The exchange rate at the time is A$1 = US$1.15. The actual debt is considered to be a tradepayable and is a primary financial instrument. The exchange rate on 1 April 2023 is A$1 =US$1.09.Required:(a) As the debt is payable in two months’ time describe the potential risk to Gilligan Ltd.(b) Assume that McCoy Ltd is concerned about possible adverse exchange ratemovements, what action could the company take?On May 8, 2019, Jett Company (a U.S. company) made a credit sale to Lopez (a Mexican company). The terms of the sale required Lopez to pay 800,000 pesos on February 10, 2020. Jett prepares quarterly financial statements on March 31, June 30, September 30, and December 31. The exchange rates for pesos during the time the receivable is outstanding follow. Compute the foreign exchange gain or loss that Jett should report on each of its quarterly income statements for the last three quarters of 2019 and the first quarter of 2020. Also compute the amount reported on Jett’s balance sheets at the end of each of its last three quarters of 2019. May 8, 2019 . $0.1323 June 30, 2019 . 0.1352 September 30, 2019 . 0.1368 December 31, 2019 0.1335 February 10, 2020 . 0.1386On December 1, 2020, Beta Company, a U.S. electronics company purchased equipment from a Brazilian company for 900,000 Brazilian Real. The account is to be sottled on January 31, 2021. To hedge against fluctuations in the exchange rate, On December 1, 2020 Beta Company entered into a forward contract to buy the 900,000 Brazilan Real on January 31, 2021 for $0.5453. Beta Company'a year-end is December 31and Soot.rates and the.forward.cates for the Brazilan Beal were as follows: Spot Rate Forward Rate (Delivery on January 31, 2021) December 1, 2020 $0.5451 December 31. 2020 January 31,2021 $0.5453 $0.5426 $0.5425 $0.5396 Required: Prepare the Journal entries to record the transactions, adjust the accounts on December 31, 2020 and settle the payable and forward contract on January 31,2021.
- On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 130,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 130,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate (to April 30, 2021) November 1, 2020 $ 0.24 $ 0.225 December 31, 2020 0.23 0.200 April 30, 2021 0.21 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 130,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021. Prepare all journal entries, including…On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 100,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 100,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate(to April 30, 2021) November 1, 2020 $ 0.21 $ 0.195 December 31, 2020 0.19 0.170 April 30, 2021 0.18 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 100,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021.…On October 15, 2020, Buy Co., a Canadian company, entered into a contract to purchase goods from Sell Ltd., a foreign corporation. The contract terms called for the goods to be delivered to Buy Co.'s Calgary location on June 30, 2021. The cost of goods is USD $600,000 to be settled on July 31, 2021. On October 15, 2020, Buy Co. also arranged for a forward contract through its bank for USD $600,000. The goods were delivered on time, and Buy Co. settled with Sell Ltd. on July 31, 2021. Buy Co. has a May 31 year-end. The spot and forward rates are as follows: Spot Rate ($CAD): 1 USD = x.xx CAD Forward Rate ($CAD): 1 USD = x.xx CAD October 15, $1.42 $1.46 2020 May 31, 2021 $1.44 $1.48 June 30, $1.45 $1.49 2021 July 31, 2021 $1.50 $1.50 Required Prepare Buy Co.'s journal entries to reflect the above assuming that: a. the hedge is a cash flow hedge, and b. the hedge is a fair value hedge.
- On 15 May 2020 Penn Ltd, an Australian company with functional currency of Australian dollars acquires goods on credit from a supplier in Cardiff. The goods are shipped FOB Cardiff on 15 May 2020. The cost of the goods is UK200,000 and the debt remains unpaid at 30 June 2020. On 15 May 2020 the exchange rate is A$1.00 = UK0.56. On 30 June 2020 it is A$1.00 = UK0.53. Penn Ltd's reporting date is 30 June. Provide the accounting entries necessary to account for the above purchase transaction for the year ending 30 June 2020.On October 1, 2021, A Corp. purchased goods from US based corporation worth 60,500 US dollars. Payment is due in 120 days on January 30, 2022. In view of the transaction, Active Corp. entered into a forward contract to buy 60,500 US dollars from PNB in 120 days. The relevant rates are as follows: 10/01/21 12/31/21 01/30/22 Spot rate P 53 P 55 P 53.50 Forward rate 54 56.50 55How much is the net forex loss on settlement date?On November 1, 2020, Joey Company contracts to purchase special order goods from New York company. Their manufacture and delivery will take place in 120 days (on March 1, 2021 ). The contract price is $1,200, to be paid by August 1, 2020 which is 150 days after delivery. On November 1, 2020, Joey hedges its foreign currency payable commitment with a forward exchange contract – fair value hedge to receive $1,200 in 270 days (the 120 days delivery plus 150 days of credit period). The forward rate for a 270-day forward contract is P41.25 to 1$. The purpose of this 270-day forward exchange contract is two-fold. First, for the 120 days from November 1, 2020 until March 1, 2021, the forward exchange contract is a hedge of an identifiable foreign currency firm commitment. For the 150-day period from March 1, 2021 until August 1, 2021, the forward exchange contract is a hedge of a foreign currency exposed net liability position. The following exchange rates at various dates are as follows…
- On September 30, 2020, Chicken Ltd., a Canadian company, entered into a contract to purchase goodsfrom Wing Ltd., a foreign corporation. The terms of the contract call for the goods to be delivered toChicken Ltd.'s Edmonton location on May 30, 2021. The cost of goods is EUR $1,000,000 to be settled onJuly 31, 2021. On September 30, 2020, Chicken Ltd. also arranged for a forward contract through its bank for EUR$1,000,000. The goods were delivered on time, and Chicken Ltd, settled with Wing Ltd. on July 31, 2021.Chicken Ltd. has a April 30 year-end.The spot and forward rates are as follows: Spot Rate ($CAD)1 USD = x.xX CAD Forward Rate($CAD)1 USD = XXX CAD September 30, 2020 $1.42 $1.46 April 30, 2021 $1.44 $1.48 May 30, 2021 $1.45 $1.49 July 31, 2021 $1.50 $1.50 RequiredPrepare Chicken Ltd.'s journal entries to reflect the above assuming that:a. the hedge is a cash flow hedge, andb. the hedge is a fair value hedge.On December 15, 2020, Lisbeth Inc. (a U.S.-based company) purchases merchandise inventory from a foreign supplier for 50,000 schillings. Lisbeth agrees to pay in 45 days, after it sells the merchandise. Lisbeth makes sales rather quickly and pays the entire obligation on January 25, 2021. Currency exchange rates for 1 schilling are as follows: Date U.S. Dollar per Schilling December 15, 2020 $ 0.28 December 31, 2020 0.30 January 25, 2021 0.33 January 31, 2021 0.34 Prepare all journal entries for Lisbeth Company in connection with this purchase and payment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)On November 1, 2023, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 310,000 yuan. Cheng expects to receive the goods on April 30, 2024, and make immediate payment. On November 1, 2023, Cheng enters a six-month forward contract to buy 310,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points excluded in assessing hedge effectiveness and amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate (to April 30, 2024) November 1, 2023 $ 0.42 $ 0.405 December 31, 2023 0.41 0.380 April 30, 2024 0.39 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2024, and pays 310,000 yuan immediately. Cheng sells the imported goods in the local market in May 2024. Required: Prepare all journal entries,…