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Roger Corp purchased CDs from a Thailand company for 1,000,000 baht payable in August. To hedge currency risk, Roger bought forward baht for August delivery. Journal entries recorded the purchase liability, forex gains/losses over time, and cash settlement when payment was due. Yoyoy Construction secured an order from Japan payable in Yen in April. To hedge, Yoyoy sold forward Yen for April delivery. Journal entries recorded the receivable, forex gains/losses over time, and cash settlement upon delivery.

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Glory Nicol Orapa
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74 views

FC

Roger Corp purchased CDs from a Thailand company for 1,000,000 baht payable in August. To hedge currency risk, Roger bought forward baht for August delivery. Journal entries recorded the purchase liability, forex gains/losses over time, and cash settlement when payment was due. Yoyoy Construction secured an order from Japan payable in Yen in April. To hedge, Yoyoy sold forward Yen for April delivery. Journal entries recorded the receivable, forex gains/losses over time, and cash settlement upon delivery.

Uploaded by

Glory Nicol Orapa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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1. On June 1, 2021, Roger Corp.

purchased compact disc worth 1,000,000 baht from a Thailand Company, payable on
August 1, 2021. To hedge this foreign currency exposure, Roger Corp. bought 1,000,000 baht on June 1 for delivery on
August 1, 2021. The following exchange rates applied:

June 1, 2021 60-day forward rate 1 baht = P1.17


Spot rate 1 baht = P1.15

June 31, 2021 30-day forward rate 1 baht = P1.19


(Fiscal year-end) Spot rate 1 baht = P1.17

August 1, 2021 Spot rate 1 baht = P1.20

Required: Prepare all necessary journal entries to record the above transactions on the books of Max Corporation.

Date Importing Forward Contract


Purchases (1,000,000x1.15) 1,150,000
06/01/21 No entry
Accounts Payable 1,150,000
Forex Loss (1.17-1.15=0.02x1,000,000) 20,000 Forward Contract (Asset) (1.19-1.17=0.02x1,000,000) 20,000
06/30/21
Accounts Payable 20,000 Gain on Forward Contract 20,000
Cash (FC) (1,000,000x1.20) 1,200,000
Accounts Payable (1,000,000x1.17) 1,170,000 Cash (LC) (1,000,000x1.17)
08/01/22 Forex Loss (1.20-1.17=0.03x1,000,000) 30,000 1,170,000
Cash (FC) (1,000,000x1.20) 1,200,000 Forward Contract (Asset) (1.19-1.17=0.02x1,000,000) 20,000
Gain on Forward Contract (1.20-1.19=0.01x1,000,000) 10,000

2. On October 1, 2021, Yoyoy Construction Inc. secured an order for construction materials from a company in Japan.
These are to be delivered on April 1, 2022. The sales price, which is payable upon delivery, is 400,000 Yen. The spot
rate on October 1, 2021, is P.38. In order to protect itself against foreign currency fluctuations, Yoyoy sold 400,000 Yen
for delivery in 180 days at a price of P.34 in forward market. The following additional exchange rates prevailed:

December 31, 2021 Forward rate for 90-day delivery 1 Yen = P.35
(Yoyo’s fiscal year-end) Spot rate 1 Yen = P.39

April 1, 2022 Spot rate 1 Yen = P.36

Required: Prepare all necessary journal entries for the above transactions on the books of Yoyoy Inc.

Date Exporting Forward Contract


Accounts Receivable (400,000x0.38) 1,152,000
10/01/21 No entry
Sales 1,152,000
Loss Forward Contract (0.35-0.34=0.01x400,000) 4,000
Accounts Receivable (0.39-0.38=0.01x400,000) 4,000
12/31/21 Forward Contract (Liability)
Forex Gain 4,000
4,000
Cash (LC) (400,000x0.34) 136,000
Cash (FC) (400,000x0.36) 144,000
Forward Contract (Liability) (0.35-0.34=0.01x400,000) 4,000
04/01/22 Forex Loss (0.39-0.36=0.03x400,000) 12,000
Loss of Forward Contract (0.36-0.35=0.01x400,000) 4,000
Accounts Receivable (400,000x0.39) 156,000
Cash (FC) (400,000x0.36) 144,000

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