Question

On November 1, 2014, Ross Corporation, a calandar-year U.S. Corporation, invested in a purely
?speculative contact to purchase 1 million euros on January 30, 2015, from Trattoria Company, an
?Italian borkerage firm. Ross agreed to purchase 1,000,000 euros from Trattoria at a fixed price of
?$1.420 per euro. Trattoria agreed to transmit 1,000,000 euros to Ross on January 30, 2015.
?Net settlement is not permitted. The spot rates for euros are:

?Nov 01, 2014 1 euro-$1.415
?Dec 31, 2014    1 euro-$1.395
?Jan 30, 2015    1 euro-$1.410

?The 30 day future rate for euros on December 31, 2014 was $1.405. Prepare the General Journal entries that
?Ross would record on November 1, December 31, and January 30.

?Please help me. Thank you!

Answer 1

Date	Accounts Title and Explanation	Debit	credit
Nov 1, 2014	Contract Receivable (euro)	$      1,420,000
	Contract Payable		$      1,420,000
	(1,000,000 x $1.420/euro)
Dec 31, 2014	Exchange Loss	$           15,000
	Contract Receivable (euro)		$           15,000
	{1,000,000 x ($1.405 - $1.420)}
Jan 30, 2015	Contract Receivable (euro)	$             5,000
	Exchange Gain		$             5,000
	{1,000,000 x ($1.410 - $1.405)}
	Cash (euro)	$      1,410,000
	Contract Payable	$      1,420,000
	Cash		$      1,420,000
	Contract Receivable (euro)		$      1,410,000