Problem IV: On 7/1/2018, a company forecasts the purchase of inventory from a foreign vendor. The...

  

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Problem IV: On 7/1/2018, a company forecasts the purchase of inventory from a foreign vendor. The cost is estimated to be 550,000 FCU. The inventory will be delivered on 9/15/2018. Also, on 7/1/2018, the company paid $3,000 to purchase a call option to buy 550,000 FCU at a strike price of $0.378 expiring end of September. 1-Jul 31-Jul 31-Aug 15-Sep $0.396 $0.392 $0.364 $2,500 $6,500 Spot Rate $0.375 FV of Option $3,000 Instructions: Prepare the journal entries on the dates listed (The company prepared monthly financial statements): 1. Assuming that on 9/15/2018 the option was exercised and inventory delivered and paid. 2. What if the spot rate on 9/15/2018 was $0.3737 1 Problem I: (Foreign Currency Transaction) On 10/17/2017, A U.S. company (which has a 12/31 year-end) took delivery from a Canadian firm of inventory costing C$750,000. Payment is due in 90 days. Concurrently the company entered into a forward contract to buy C$750,000 in 90 days at 1 CS=$1.07. Direct exchange rates for CS on the respective dates are as follows: Forward Rate Date Spot Rate (Delivery on 1/15/2018) 1.06 1.02 1/15/2018 1.05 Instructions: Prepare all entries related to this transaction, assuming that the payment was made on 1/15/2018. 10/17/2017 12/31/2017 1.07 1.04 Problem IV: On 7/1/2018, a company forecasts the purchase of inventory from a foreign vendor. The cost is estimated to be 550,000 FCU. The inventory will be delivered on 9/15/2018. Also, on 7/1/2018, the company paid $3,000 to purchase a call option to buy 550,000 FCU at a strike price of $0.378 expiring end of September. 1-Jul 31-Jul 31-Aug 15-Sep $0.396 $0.392 $0.364 $2,500 $6,500 Spot Rate $0.375 FV of Option $3,000 Instructions: Prepare the journal entries on the dates listed (The company prepared monthly financial statements): 1. Assuming that on 9/15/2018 the option was exercised and inventory delivered and paid. 2. What if the spot rate on 9/15/2018 was $0.3737 1 Problem I: (Foreign Currency Transaction) On 10/17/2017, A U.S. company (which has a 12/31 year-end) took delivery from a Canadian firm of inventory costing C$750,000. Payment is due in 90 days. Concurrently the company entered into a forward contract to buy C$750,000 in 90 days at 1 CS=$1.07. Direct exchange rates for CS on the respective dates are as follows: Forward Rate Date Spot Rate (Delivery on 1/15/2018) 1.06 1.02 1/15/2018 1.05 Instructions: Prepare all entries related to this transaction, assuming that the payment was made on 1/15/2018. 10/17/2017 12/31/2017 1.07 1.04

Answer rating: 100% (QA)

Transaction date 10172017 Purchases C750000 Paymentdue in 90 days If it is treated as hedge instrume... View the full answer