Tinitoys, Inc., a domestic company, purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br. reals)
Question:
Tinitoys, Inc., a domestic company, purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br. reals) on May 1, 20X2. Payment is due on June 30, 20X2. On May 1, 20X2, Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals. The forward contract is not designated as a hedge. Tinitoys' fiscal year ends on May 31. The direct exchange rates were as follows:
| Spot Rate | Forward Rate |
May 1, 20X2 | $0.523 | $0.525 (60 days) |
May 31, 20X2 | $0.516 | $0.52 (30 days) |
June 30, 20X2 | $0.508 | |
Required information
Based on the preceding information, the entries on June 30, 20X2, include a
a. debit to Dollars Payable to Exchange Broker, $262,500.
b. credit to Cash, $254,000.
c. credit to Premium on Forward Contract, $6,000.
d. credit to Foreign Currency Receivable from Exchange Broker, $262,500.
Contemporary Business Mathematics with Canadian Applications
ISBN: 978-0134141084
11th edition
Authors: S. A. Hummelbrunner, Kelly Halliday, Ali R. Hassanlou, K. Suzanne Coombs