Question

In: Accounting

Problem Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are...

Problem

Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company uses a periodic inventory system and is on a calendar-year basis. All exchange rates are direct quotations.
Dec. 1 Crystal Exporting purchased merchandise from Chang’s Ltd., a Hong Kong manufacturer. The invoice was for 350,000 Hong Kong dollars, payable on April 1. On this same date, Crystal Exporting acquired a forward contract to buy 350,000 Hong Kong dollars on April 1 for $0.1314.
Dec. 29 Crystal Exporting sold merchandise to Zintel Retailers for 290,000 Hong Kong dollars, receivable in 90 days. No hedging was involved.
1-Apr Crystal Exporting received 290,000 Hong Kong dollars from Zintel Retailers.
1-Apr Crystal Exporting submitted full payment of 350,000 Hong Kong dollars to Chang’s, Ltd., after obtaining the 350,000 Hong Kong dollars on its forward contract.
Spot rates and the forward rates for the Hong Kong dollar were as follows:
Spot Rate Forward Rate for
April 1 Delivery
Dec. 1 $0.13 $0.13
Dec. 29 0.124 0.1305
Dec. 31 0.1259 0.1308
1-Apr 0.143
(a) Prepare journal entries for the transactions including the necessary adjustments on December 31.
(Credit account titles are automatically indented when the amount is entered. Do not indent manually.
If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Solutions

Expert Solution

Journal Entries

Date General Journal Debit Credit
Dec 1 Purchases $45500
Accounts Payable(350000*$0.13) $45500
Dec 1 FC Receivable from Exchange Dealer $45500
Dollars payable to Exchange Dealer $45500
(350000*0.13)
Dec 29 Accounts Receivable $35960
Sales $35960
(290000*0.124)
Dec 31 Accounts Payable $1435
Transaction Gain $1435
350000*($0.13-$0.1259)
Dec 31 Transaction Loss $280
FC Receivable from Exchange Dealer $280
350000*(0.1308-0.13)
Dec 31 Accounts Receivable $551
Transaction Gain $551
(290000*(0.1259-0.124)
April 1 Cash(0.143*290000) $41470
Accounts Receivable(290000*0.1259) $36511
Transaction Gain $4959
April 1 Transaction Loss(350000*(0.143-0.1259) $5985
Accounts payable $5985
April 1 FC Receivable from Exchange Dealer $4270
Transaction Gain(350000*(0.143-0.1308) $4270
April 1 Investment in FC $50050
Dollars Payable to Exchange Dealer $45500
Cash $45500
FC Receivable from Exchange Dealer $50050
April 1 Accounts Payable $50050
Investment in Foreign Currency $50050

ekkarill92 answered 2 years ago
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