On December 10, 2020, Robin Franchises, a U.S. company, received a purchase order from a U.K. customer
Question:
On December 10, 2020, Robin Franchises, a U.S. company, received a purchase order from a U.K. customer for delivery of merchandise on January 15, 2021. The price of the merchandise is £10,000,000, payable on March 15, 2021, in pounds. To hedge its exposure to exchange rate changes, on December 10, 2020, Robin entered a forward contract for delivery of £10,000,000 to the broker on March 15, 2021. The merchandise was delivered as scheduled. On March 15, 2021, Robin received payment from the customer, and delivered the pounds to the broker to close the forward contract. Robin’s accounting year ends December 31. Exchange rates ($/£) are as follows:
Prepare the journal entries Robin Franchises made on January 15, 2021 and March 15, 2021 to record the above transactions, as well as its end-of-year adjusting entries on December 31, 2020.
Fundamentals of Financial Accounting
ISBN: 978-0078025914
5th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby