On October 1, Year 6, Versatile Company contracted to sell merchandise to a customer in Switzerland at a selling price of CHF430,000. The contract called for the merchandise to be delivered to the customer on January 31, Year 7, with payment due on delivery. On October 1, Year 6, Versatile arranged a forward contract to deliver CHF430,000 on January 31, Year 7, at a rate of CHF1 = $2.29. Versatile’s year-end is December 31.

 

The merchandise was delivered on January 31, Year 7, and CHF430,000 were received and delivered to the bank.

 

Exchange rates were as follows:

 

	Spot Rates	Forward Rates**
October 1, Year 6	CHF1 = $2.27	CHF1 = $2.29
December 31, Year 6	CHF1 = $2.30	CHF1 = $2.31
January 31, Year 7	CHF1 = $2.28	CHF1 = $2.28

**For contracts expiring on January 31, Year 7.

(a) Prepare the journal entries (using the net method) that Versatile should make to record the events described assuming that the forward contract is designated as a cash flow hedge. (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required.)

 

Date	General Journal	Debit	Credit
October 1, Year 6	(Click to select)   Commitment receivable   Cash   Exchange loss   Other comprehensive income   Receivable from bank   Land   No journal entry required   Payable to bank   Equipment
	(Click to select)   Commitment receivable   Other comprehensive income   Receivable from bank   Cash   Equipment   Forward contract   Exchange loss   No journal entry required   Land
	Record the forward contract.
December 31, Year 6	(Click to select)   Exchange loss   No journal entry required   Forward contract   Equipment   Commitment receivable   Receivable from bank   Other comprehensive income   Cash   Land
	(Click to select)   Sales   No journal entry required   Exchange gain   Bills payable   Accounts payable   Interest receivable   Forward contract   Loan payable   Notes payable
	Record the adjustment of forwarding contract to forwarding rate.
January 31, Year 7	(Click to select)   Exchange loss   Cash (CHF)   Receivable from bank   Commitment receivable   Land   No journal entry required   Payable to bank   Other comprehensive income   Equipment
	(Click to select)   Interest receivable   Bills payable   Payable to bank   Notes payable   Accounts payable   Loan payable   No journal entry required   Exchange gain   Sales
	Record the sales.
	(Click to select)   Forward contract   Other comprehensive income   Equipment   Exchange loss   Commitment receivable   Receivable from bank   No journal entry required   Cash   Land
	(Click to select)   Accounts payable   No journal entry required   Notes payable   Bills payable   Exchange gain   Loan payable   Sales   Other comprehensive income   Interest receivable
	Record the adjustment of forward contract to forward rate.
	(Click to select)   No journal entry required   Exchange loss   Commitment receivable   Equipment   Land   Other comprehensive income   Cash   Payable to bank   Receivable from bank
	(Click to select)   Bills payable   Interest receivable   Loan payable   Exchange gain   Sales   No journal entry required   Accounts payable   Notes payable   Payable to bank
	Record the adjustment of other comprehensive income.
	(Click to select)   No journal entry required   Equipment   Other comprehensive income   Land   Commitment receivable   Cash   Payable to bank   Receivable from bank   Exchange loss
	(Click to select)   Loan payable   No journal entry required   Bills payable   Accounts payable   Forward contract   Exchange gain   Sales   Notes payable   Interest receivable
	(Click to select)   Interest receivable   Accounts payable   No journal entry required   Loan payable   Sales   Notes payable   Bills payable   Payable to bank   Cash (CHF)
	Record the forward contract with bank.

 

(b) Prepare a partial trial balance of the accounts used as at December 31, Year 6. (Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response.)

 

Partial trial balance
December 31, Year 6
Account	Debit	Credit
(Click to select)   Interest receivable   Exchange gain   Notes payable   Accounts payable   Forward contract   Sales   Loan payable   Bills payable	$	$
(Click to select)   Land   Inventory   Receivable from bank   Purchase   Accounts receivable   Exchange loss   Other comprehensive income   Equipment	$	$

 

(c) Prepare the journal entries (using net method) that Versatile should make to record the events described, assuming that the forward contract is designated as a fair value hedge. (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required.)

 

Date	General Journal	Debit	Credit
October 1, Year 6	(Click to select)   Commitment receivable   Equipment   Exchange loss   Land   Other comprehensive income   No journal entry required   Payable to bank   Cash   Receivable from bank
	(Click to select)   Other comprehensive income   Payable to bank   Receivable from bank   Land   No journal entry required   Commitment receivable   Cash   Exchange loss   Equipment
	Record the forward contract.
December 31, Year 6	(Click to select)   Patents   Cash   Other comprehensive income   No journal entry required   Commitment receivable   Exchange gains and losses   Payable to bank   Equipment   Land
	(Click to select)   Sales   No journal entry required   Notes payable   Interest receivable   Forward contract   Accounts payable   Bills payable   Exchange gain   Loan payable
	Record the adjustment of forward contract to forward rate.
	(Click to select)   Cash   Receivable from bank   Accounts receivable   Purchase   Commitment receivable   Exchange loss   Inventory   Land   No journal entry required
	(Click to select)   Interest receivable   Exchange gains and losses   Loan payable   Payable to bank   Sales   Bills payable   No journal entry required   Notes payable   Accounts payable
	Record the adjustment of upcoming accounts receivable value to the forward rate.
January 31, Year 7	(Click to select)   Cash (CHF)   Inventory   Land   Accounts receivable   Receivable from bank   Purchase   No journal entry required   Equipment   Exchange loss
	(Click to select)   Sales   Exchange gain   Accounts payable   Interest receivable   Bills payable   No journal entry required   Notes payable   Payable to bank   Loan payable
	Record the sales.
	(Click to select)   Forward contract   Accounts receivable   Exchange loss   Inventory   No journal entry required   Land   Purchase   Receivable from bank   Equipment
	(Click to select)   Interest receivable   Loan payable   Notes payable   No journal entry required   Exchange gains and losses   Sales   Bills payable   Payable to bank   Accounts payable
	Record the adjustment of forward contract to forward rate.
	(Click to select)   Inventory   Equipment   Exchange gains and losses   Cash   Purchase   Receivable from bank   No journal entry required   Land   Accounts receivable
	(Click to select)   Payable to bank   Exchange gain   Accounts payable   Sales   Commitment receivable   No journal entry required   Bills payable   Notes payable   Loan payable
	Record the adjustment of upcoming accounts receivable value to the forward rate.
	(Click to select)   Purchase   Equipment   No journal entry required   Commitment receivable   Cash   Accounts receivable   Exchange loss   Inventory   Receivable from bank
	(Click to select)   Sales   Interest receivable   No journal entry required   Bills payable   Payable to bank   Exchange gain   Accounts payable   Loan payable   Notes payable
	Record to clear other commitment receivable to sales account.
	(Click to select)   Equipment   Payable to bank   No journal entry required   Inventory   Cash   Exchange loss   Purchase   Land   Accounts receivable
	(Click to select)   Sales   Bills payable   Loan payable   Accounts payable   Exchange gain   Interest receivable   Forward contract   Notes payable   No journal entry required
	(Click to select)   Cash (CHF)   Notes payable   Loan payable   Payable to bank   Bills payable   Sales   Accounts payable   Interest receivable   No journal entry required
	Record the forward contract with bank.

 

(d) Prepare a partial trial balance of the accounts used as at December 31, Year 6. (Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response.)

 

Partial trial balance
December 31, Year 6
Account	Debit	Credit
(Click to select)   Land   Equipment   Commitment receivable   Inventory   Purchase   Accounts receivable   Receivable from bank	$	$
(Click to select)   Land   Inventory   Cash   Accounts receivable   Purchase   Equipment   Forward contract	$	$
(Click to select)   Accounts receivable   Equipment   Inventory   Exchange gains and  losses   Receivable from bank   Equipment   Purchase   Land	$	$

 

Answer rating: 100% (QA)

a Oct 1 year 6 Debit Credit Record the forward contract No Entry Required 0 No Entry Required 0 Dec 31 Year 6 Recording the adjustment of forward Cont... View the full answer