Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The followi

Question

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.

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.)

Explanation / Answer

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

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