Problem 2

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PROBLEM II (20 POINTS) On November 1, 2019, Americo, Corporation purchased wine on credit from Venezia Company for 540,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2020. On November 1, 2019, Americo, Corporation also entered into a 120-day forward contract to purchase 540,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT 11/1/2019 $ 1.07 $ 12/31/2019 $ 1.09 $ 2/28/2020 $ 1.05 FORWARD 110 (120 days 113 (60 days) REQUIRED: Prepare the required information below for both the original (underlying transaction and the related forward contract. IN ORDER TO BE AWARDED CREDIT FOR YOUR ANSWERS, YOU NEED TO CLEARLY SHOW ALL OF YOUR WORK JOURNAL ENTRIES AT NOVEMBER 1, 2019 TRANSACTION DATE Foreign Currency Transaction (1 POINT) Forward Contract (3 POINTS) DECEMBER 31, 2019 YEARENO JOURNAL ENTRIES Foreign Currency Transaction (2 POINTS) Forward Contract (2 POINTS) FINANCIAL STATEMENT PRESENTATION INCOME STATEMENT (1 POINT) BALANCE SHEET (4 POINTS) JOURNAL ENTRIES AT FEBRUARY 20.2020 SETTLEMENT DATE Foreign Currency Transaction (3 POINTS) Forward Contract (4 POINTS) 2 PROBLEM II (20 POINTS) On November 1, 2019, Americo, Corporation purchased wine on credit from Venezia Company for 540,000. Payment is not due for 120 days. Thus, the transaction will be settled on February 28, 2020. On November 1, 2019, Americo, Corporation also entered into a 120-day forward contract to purchase (540,000. The forward contract is not designated as a hedge. The direct exchange rates were as follows: SPOT 11/1/2019 $ 1.07 $ 12/31/2019 $ 1.09 S 2/21/2000 S 1.05 FORWARD 1.10 (120 days) 1.13 (60 days) REQUIRED: Prepare the required information below for both the original (underlying) transaction and the related forward contract. IN ORDER TO BE AWARDED CREDIT FOR YOUR ANSWERS, YOU NEED TO CLEARLY SHOW ALL OF YOUR WORK. JOURNAL ENTRIES AT NOVEMBER 1, 2019 TRANSACTION DATE Foreign Currency Transaction (1 POINT) Forward Contract (3 POINTS) DECEMBER 31, 2019 YEAR-END JOURNAL ENTRIES Foreign Currency Transaction (2 POINTS) Forward Contract (2 POINTS) FINANCIAL STATEMENT PRESENTATION INCOME STATEMENT (1 POINT) BALANCE SHEET (4 POINTS) JOURNAL ENTRIES AL FEBRUARY 23, 2010 SETTLEMENT DATE Foreign Currency Transaction (3 POINTS) Forward Contract (4 POINTS)