Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company uses a periodic inventory system and is on a calendar-year basis. All exchange rates are direct quotations.
Dec. 1 Crystal Exporting purchased merchandise from Chang€™s Ltd., a Hong Kong manufacturer. The invoice was for 210,000 Hong Kong dollars, payable on April 1. On this same date, Crystal Exporting acquired a forward contract to buy 210,000 Hong Kong dollars on April 1 for $.1314.
Dec. 29 Crystal Exporting sold merchandise to Zintel Retailers for 120,000 Hong Kong dollars, receivable in 90 days. No hedging was involved.
April 1 Crystal Exporting received 120,000 Hong Kong dollars from Zintel Retailers.
1 Crystal Exporting submitted full payment of 210,000 Hong Kong dollars to Chang€™s, Ltd., after obtaining the 210,000 Hong Kong dollars on its forward contract. Spot rates and the forward rates for the Hong Kong dollar were as follows:

Required:
A. Prepare journal entries for the transactions including the necessary adjustments on December 31.
B. Explain the income statement treatment given to any transaction gains and losses recognized at December31.

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Forward Rate for April 1 Delivery $.1314 1308 Spot Rate Dec. 1 Dec. 29 Dec. 31 April 1 $.1265 1240 .1259 1430 1305