Entries on December 1, 2017, Sizzler Foods, a U.S. company, purchased merchandis
ID: 2562967 • Letter: E
Question
Entries on December 1, 2017, Sizzler Foods, a U.S. company, purchased merchandise from a Hong Kong supplier at a price of HK$10,000,000, payable in three months in Hong Kong dollars. To hedge its exposed liability position, Sizzler entered a forward contract for purchase of HK$10,000,000 on March 1, 2018. On March 1, Sizzler closed the forward contract and used the Hong Kong dollars to pay its supplier. Sizzler’s accounting year ends January 31 Spot rate Forward rate for delivery March 1, 2018 December 1, 2017 $0.1289 $0.1293 January 31, 2018 0.1299 0.1304 March 1, 2018 0.1303 -- Required: Prepare the journal entries Sizzler Foods made on December 1, 2017 and March 1, 2018to record the above transactions, as well as its end-of-year adjusting entries on January31, 2018.
Explanation / Answer
The journal entries are provided as below:
Date Account Titles Debit Credit December 1, 2017 Inventory (10,000,000*.1289) $1,289,000 Accounts Payable $1,289,000 (To record purchase of goods) January 31, 2018 Exchange Loss [10,000,000*(.1299 - .1289)] $10,000 Accounts Payable $10,000 (To record exchange loss resuting from restating accounts payable at the spot rate) Investment in Forward Contract [10,000,000*(.1304 - .1293)] $11,000 Exchange Gain $11,000 (To record forward contract at the current fair value) March 1, 2018 Exchange Loss [10,000,000*(.1303 - .1299)] $4,000 Accounts Payable $4,000 (To record exchange loss resuting from restating accounts payable at the spot rate) Exchange Loss [10,000,000*(.1303 - .1304)] $1,000 Investment in Forward Contract $1,000 (To record forward contract at the current fair value) Foreign Currency (10,000,000*.1303) $1,303,000 Investment in Forward Contract $10,000 Cash (10,000,000*.1293) $1,293,000 (To record fulfillment of forward contract) Accounts Payable $1,303,000 Foreign Currency $1,303,000 (To record payment of accounts payable)Related Questions
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