Question: Jerber Electronics Inc sold electrical equipment to a Dutch company

Jerber Electronics Inc. sold electrical equipment to a Dutch company for 50,000 guilders (G) on May 14, with collection due in 60 days. On the same day, Jerber entered into a 60 day forward contract to sell 50,000 guilders at a forward rate of G1 = $0.541. The forward contract is not designated as a hedge. Jerber’s fiscal year ends on June 30. The forward rate on June 30 for an exchange on July 13 is G1 = $0.530. The spot rates follow:
May 14 .... G1 = $0.530
June 30.... G1 = 0.534
July 13..... G1 = 0.525
a. Prepare journal entries for Jerber to record
(1) The sale of equipment,
(2) The forward contract,
(3) The adjusting entries on June 30,
(4) The July 13 collection of the receivable, and
(5) The July settlement of the forward contract.
b. What was the effect on the income statement in the fiscal year ending June 30?
c. What was the overall effect of this transaction on the income statement?
d. What would have been the overall effect on income if the forward contract had not been acquired?

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  • CreatedMay 23, 2014
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