Problem 7

Greater NIA, Inc., whose functional currency is the PhPeso, sold merchandise to a foreign buyer for FC100,000 on December 1, 2020. Payment is due February 28, 2021. The spot exchange rate on that date was P1.85:1FC. Predicting the PhPeso will likely strengthen against the foreign currency by the settlement date, Greater NIA hedged the exposed FC receivable by entering into a forward contract for the sale of FC100,000 for delivery on February 28, 2021. The relevant direct-quote exchange rates between the two currencies at different dates follow:

Spot ratesForward rate to 2/28/21

At December 31, 2020 (Greater NIA's year-end) 1.835 1.825

At February 28, 2021 1.820

Ignore discounting for simplification purposes.

Required: Prepare all the journal entries for the above information.

Problem 8

Assume on November 2, 2020, Pinay Cosmetics, Inc. ordered merchandise from a foreign company for delivery to Pinay on January 31, 2021 at a price of FC1,000,000. Also on November 2, 2020, Pinay entered into a forward contract to purchase FC1,000,000 for delivery on January 31, 2021. Exchange rates for the foreign currency are:

11/2/2012/31/201/31/21

Spot ratePhp0.750.760.79

30-day forward0.760.800.79

90-day forward0.780.790.80

Required: Prepare the journal entries for the above information.

Problem 11

On December 1, 2020, Chile Company paid 6,000 to purchase a 90-day put option for FC400,000. The option's purpose is to hedge an exposed accounts receivable of FC400,000 from a sale of merchandise. The merchandise is to be shipped on December 1, 2020 payment for which is due on March 1, 2021. Relevant rates and market values at different dates are as follows:

12/01/20 12/31/2003/01/21

Spot rate (market price) 1.20 1.12 1.13

Strike price (exercise price)1.20 1.20 1.20

Fair value of put option 6,000 36,00028,000

Required: Write the journal entries for the above information.