Quiz 9

Manang Iska Inc. purchased inventory on December 1, 2019.
Payment of 20,000 dollars was to

be made in sixty days. Also, on December 1, Iska signed a contract to purchase§20,000 in sixty
days.
December 1 spot rate P1 = §51.00 60-day forward rate P1 = §51.60
December 31, spot rate P1 = §50.50 30-day forward rate P1 = §52.62
January 30 spot rate P1 = §52.80
a. In the journal entry to record the establishment of a forward exchange contract, at what
amount should the Forward Contract account be recorded on December 1?
b. What will be the journal entries for this transaction?
a. In the journal entry to record the establishment of a forward exchange contract, at what amount
should the Forward Contract account be recorded on December 1?
ANSWER: 0, Manang Iska Inc. will make no formal entry for the forward contract because it is an
executory contract (changes hands) and has a fair value of zero
b. What will be the journal entries for this transaction?
DATE ITEM INSTRUMENT
Purchase 1,020,000
FC Receivable 1,032,000
12-1-2019 Accounts Payable
Accounts Payable 1,032,000
1,020,000
Accounts Payable 10,000 FC Receivable 20,400
12-31-19 Forex Gain 10,000 Forex Gain 20,400

Cash 1,056,000
Accounts Payable 1,010,000 Forex Gain 3,600
Forex Loss 46,000 FC Receivable 1,052,400

1-30-20
Cash
1,056,000 Accounts Payable 1,032,000
Cas 1,032,000
Meisner Co. made a purchase commitment to buy parts costing §100,000 for a foreign
supplier on December 1, 2019, when the spot rate was P20 per stickle. During that date,
the forward rate was P 25. By the year yearend, the forward rate was P 24. A two-
month forward contract was signed on that date to purchase §100,000. On Jan 30,
2020, when the parts were received and payment was made, the spot rate was P26 per
stickle.
a. At what amount should inventory be reported?
b.Prepare the journal entries
a. At what amount should inventory be reported?
ANSWER: 100,000 * 26= 2,600,000
b.Prepare the journal entries
DATE ITEM INSTRUMENT

Dr. FC receivable
2,500,000
12-1-19 NO entry
Cr. Accounts Payable
2,500,000
Dr. Forex firm commitment
Dr. Forex loss 100,000
100,000
12-31-19
Cr. FC receivable 100,000
Cr. Forex gain 100,000
Dr. Purchases 2,600,000
Cr. Cash 2,600,000

Dr. Cash 2,600,000

Cr. FC receivable 2,400,000
Dr. Forex loss 200,000
Cr. Forex gain 200,000
1-30-20 Cr. Forex firm commitment

200,000
Dr. Accounts payable

2,500,000
Dr. Forex firm commitment
Cr. Cash 2,500,000
100,000
Cr. Purchases 100,000
Meisner Co. made a forecasted purchase to buy 100 units of car parts worth $100,000
for a foreign supplier on December 1, 2019, when the spot rate was P49 per stickle.
During that date, the forward rate was P 25. By the year yearend, the forward rate was P
47. A two-month forward contract was signed on that date to purchase §100,000. On
Jan 30, 2020, when the parts were physically received, the payment was made when the
spot rate was P48 per stickle. Eventually 65 of the parts were sold locally.
At what amount should inventory be reported?
What amount of realized gain or loss will be transferred to income statement?
At what amount should inventory be reported?
ANSWER: 1,680,000
What amount of realized gain or loss will be transferred to income statement?
ANSWER: 65,000 realized loss
Solution:
1. Inventory (48* 100,000) 4,800,000
less: inventory sold (65/100) * 4,800,000 3, 120,000
1,680,000
2. unrealized forex gain (25-47) *100,000 2,200,000
less: unrealized forex loss (25- 48) *100,000 (2,300,000)
100,000 loss
(65/100) x 100,000 = 65,000 realized loss or
(3,120/4,800) * 100.000 = 65,000 realized loss
During November 1, 2020, Farru sold a machine from Japan worth 5,000 yen to be paid
in January 3, 2021. As a buffer to the possible loss an option contract was acquired for P
10,000 at a strike price of 15. The details are as follows:
Nov 1, 2020 Dec 31, 2020 Jan 3, 2021
Option Fair value 10,000 1 8,000 24,000
Spot Rate 15 14 18
Strike Price 15 15 15
Required: Compute the gains or losses if non-split accounting is used. (Categorize the
two values)
CHANGE fair value of the contract from transaction date to Balance sheet date (10,000- 8,000)
= 2,000 loss
CHANGE Fair value of the contract from Balance sheet date to settlement date or change of fair
value if the option contract (8,000-24,000) = 16,000 gain

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Manang Iska Inc. purchased inventory on December 1, 2019.

Payment of 20,000 dollars was to

b. What will be the journal entries for this transaction?

DATE ITEM INSTRUMENT

Accounts Payable 10,000 FC Receivable 20,400

12-31-19 Forex Gain 10,000 Forex Gain 20,400

Accounts Payable 1,010,000 Forex Gain 3,600

Forex Loss 46,000 FC Receivable 1,052,400

a. At what amount should inventory be reported?

ANSWER: 100,000 * 26= 2,600,000

b.Prepare the journal entries

DATE ITEM INSTRUMENT

Cr. Cash 2,600,000

Cr. Purchases 100,000

At what amount should inventory be reported?

What amount of realized gain or loss will be transferred to income statement?

ANSWER: 65,000 realized loss

1. Inventory (48* 100,000) 4,800,000

less: inventory sold (65/100) * 4,800,000 3, 120,000

2. unrealized forex gain (25-47) *100,000 2,200,000

less: unrealized forex loss (25- 48) *100,000 (2,300,000)

100,000 loss

(65/100) x 100,000 = 65,000 realized loss or

(3,120/4,800) * 100.000 = 65,000 realized loss

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