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ID: 2543915 • Letter: U
Question
user) users.nt mi ? operation-logged In #/learning Platform/quiz/student On November 1, 2017, American Company sold inventory to a foreign customer. The account will be settled on March 1 with the receipt of $450,000 foreign currency units (FCU). On November 1, American also entered into a forward contract to hedge the exposed asset. The forward rate is $0.70 per unit of foreign currency. American has a December 31 fiscal year-end. Spot rates on relevant dates were What will be the adjusted balance in the Accounts Receivable account on December 31, and how much gain or loss was recorded as a result of the adjustment? Date November 1 December 31 March 1 Per Unit of Foreign Currency S0.73 0.71 0.74 Minimized View A. Receivable Balance, $319,500; Gain/Loss Recorded, $9,000 gain Receivable Balance, 5319,500; Gain/Loss Recarded, 59,000 lass Receivable Balance, 5333,000, Gain/Loss Recorded. 54,500 gain Receivable Balance, 5333,000; Gain/Loss Recorded, $18.000 gein B. C. 2 07:00 PM MSTExplanation / Answer
Solution:
Rate of foreign currency at date of sale i.e.1st november = $0.73
Accounts receivable to be recorded at date of transaction at = 450000*$0.73 = $328,500
At December 31, rate of foreign currency decreased to $0.71
Therefore loss to be recorded = ($0.73 - $0.71)*$450,000 = $9000 loss
Receivable balance on Dec'31 = $328,500 - $9,000 = $319,500
Therefore 2nd option is the right choice.
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