On November 3, 2020, Robin Franchises, a U.S. company, sold merchandise to a franchisee in the U.K.,
Question:
On November 3, 2020, Robin Franchises, a U.S. company, sold merchandise to a franchisee in the U.K., at a price of £8,000,000, payable in three months in pounds. To hedge its exposed asset position, on November 3, 2020, Robin entered a forward contract for delivery of £8,000,000 to the broker on February 3, 2021. On February 3, 2021, Robin received payment from the franchisee, and delivered the pounds to the broker to close the forward contract. Robin’s accounting year ends December 31. Exchange rates ($/£) are as follows:
Spot rate | Forward rate for delivery February 3, 2021 | |
|---|---|---|
| November 3, 2020 | $ 1.3168 | $1.3166 |
| December 31, 2020 | 1.3164 | 1.3163 |
| February 3, 2021 | 1.3162 | -- |
a. Prepare the journal entries Robin Franchises made on November 3, 2020 and February 3, 2021, as well as the required end of year adjusting entry. (7 total entries)
b. Calculate the cash gain or loss realized by Robin Franchises by hedging compared with not hedging.
Expert Answer:
1 Date 3112020 123120 322021 Accounts title and exlanation Accounts receivable Sales ... View the full answer
Horngrens Financial and Managerial Accounting The Financial Chapters
ISBN: 978-0134486857
6th edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
