Original Currency: U.S.

Dollars ($)

1. 15-Jan Accounts Receivable 7,400

Sales Revenue 7,400
Foreign export denominated in U.S. dollars

15-Mar Cash 7,400

Account Receivables 7,400
Collect receivable from South Korean firm

2. 8-Mar Inventory 4,354

Accounts Payable (€) 4,354
Foreign inventory purchase with payable denominated in foreign currency

1-May Accounts Payable (€) 4,270

Foreign Currency Units (€) 4,270
Settlement of foreign currency payable

Accounts Payable (€) 84

Foreign Currency Transaction Gain 84

Venus Shipping must settle the payable in foreign currency units.

3 Receivables: 150,000
Spot rates: Forward rate 0.580
Jun-06 0.600
Jul-06 0.590
Sep-04 0.585

Sales Related Entries Forwa

6-Jun Accounts Receivable (€) 90,000
Sales Revenue 90,000
Export sale denominated in euros

6-Jul Dollars receivables from

Signed 60-day forward co

4-Sep Foreign Currency Transaction Loss 2,250 Foreign Currency Transac

Accounts Receivable (€) 2,250
Revalue foreign currency receivable to equivalent U.S. dollar value Revalue foreign currency

4-Sep Foreign Currency Units (€) 87,750 Foreign Currency Payable

Accounts Receivable (€) 87,750
Receive euros from customer Deliver euros to exchang

Cash

Receive U.S. dollars from

 Forward Contract Related Entries

Dollars receivables from exchange broker ($) 87,000

Foreign Currency Payable to exchange broker (€) 87,000
Signed 60-day forward contract to deliver euros

Foreign Currency Transaction Loss 750

Foreign Currency Payable to exchange broker (€) 750
Revalue foreign currency payable for loss since July 6

Foreign Currency Payable to exchange broker (€) 87,750

Foreign Currency Units (€) 87,750
Deliver euros to exchange broker

Cash 87,000
Dollars receivables from exchange broker ($) 87,000
Receive U.S. dollars from broker in accordance with forward contract signed on July 6
Part I

a. Journal entries for Sorgum's import and export transactions during 20X5 and 20X6:

1
March 1, 20X5
Accounts Receivable (C$) 19,500
Sales 19,500
$19,500 = C$30,000 x $.65 spot rate

May 30, 20X5

Accounts Receivable (C$) 900
Foreign Currency Transaction Gain 900
$900 = C$30,000 x ($.68 - .65)

Foreign Currency Units (C$) 20,400

Accounts Receivable (C$) 20,400
$20,400 = C$30,000 x $.68

Cash 20,400
Foreign Currency Units (C$) 20,400

2
November 16, 20X5
Inventory 16,500
Accounts Payable (£) 16,500
$16,500 = £10,000 x $1.65

December 31, 20X5

Accounts Payable (£) 200
Foreign Currency Transaction Gain 200
$200 = £10,000 x ($1.63 - $1.65)

January 15, 20X6

Foreign Currency Transaction Loss 100
Accounts Payable (£) 100
$100 = £10,000 x ($1.64 - $1.63)

Foreign Currency Units (£) 16,400

Cash 16,400

Accounts Payable (£) 16,400

Foreign Currency Units (£) 16,400
b. Sorgum should report a foreign currency transaction gain of $100 on its income statement for 20X5.
This amount is computed as follows:

Foreign currency transaction gain from transaction

denominated in pounds 200
Foreign currency transaction gain from transaction
denominated in Canadian dollars 900
Foreign currency transaction gain for 20X5 1,100
Part II

1 Journal entries for the use of a forward contract to manage the foreign currency exposure of the sal
March 1, 20X5
Dollars Receivable from Exchange Broker 19,200
Foreign Currency Payable to Exchange Broker (C$)
$19,200 = C$30,000 x $.64 forward rate

May 30, 20X5

Foreign Currency Transaction Loss 1,200
Foreign Currency Payable to Exchange Broker (C$)

$20,400 = C$30,000 x $.68 May 30 spot rate

- 19,200 = C$30,000 x $.64 March 1 forward rate
$ 1,200 = C$ 30,000 x ($.68 - $.64)

Foreign Currency Payable to Exchange Broke 20,400

Foreign Currency Units (C$)

Cash 19,200
Dollars Receivable from Exchange Broker

2 Journal entries for the use of a forward contract to manage its foreign currency exposure in pounds. T
November 16, 20X5
Foreign Currency Receivable from Exchange 16,700
Dollars Payable to Exchange Broker
$16,700 = £10,000 x $1.67 Nov. 16 forward rate

December 31, 20X5

Foreign Currency Transaction Loss 250
Foreign Currency Receivable from Exchange Broker (
$16,450 = £10,000 x $1.645 Dec. 31 forward rate
- 16,700 = £10,000 x $1.67 Nov. 16 forward rate
$ 250 = £10,000 x ($1.645 - $1.67)

January 15, 20X6

Foreign Currency Transaction Loss 50
Foreign Currency Receivable from Exchange Broker (
$16,400 = £10,000 x $1.640 Jan. 5 spot rate
16,450 = £10,000 x $1.645 Dec. 31 forward rate
$ 50 = £10,000 x ($1.640 - $1.645)

Dollars Payable to Exchange Broker 16,700

Cash

Foreign Currency Units (£) 16,400

Foreign Currency Receivable from Exchange Broker (
b. Sorgum would report a net loss in 20X5 of $1,100, as follows:

20X5 Loss 
Transaction 1
May 30 Part I -
May 30 Part II 1,200

Transaction 2
Dec. 31, 20X5 Part I -
Dec. 31, 20X5 Part II 250

20X5, Net Loss 350

c. Sorgum would report a net loss in 20X6, of $150, as follows:

20X6 Loss 
Transaction 2
Jan. 15, 20X6 — Part I 100
Jan. 15, 20X6 — Part II 50

20X6, Net Loss 150

oreign currency exposure of the sale in Canadian dollars:

19,200

1,200

20,400

19,200

eign currency exposure in pounds. The forward contract is not designated as a hedge.

16,700

250

50

16,700

16,400
Gain

900
-

200
-

Gain

-
-
Payables: 100,000

FR: 0.609 FR: 0.612 SR: 0.602

SR: 0.6 SR: 0.61

1/12/X1 31/12/X1 31/3/X2

Transaction date Balance sheet date Settlement Date

- purchase of furniture resulting - settle forward exchange contract and

in foreign currency payable received A$100,000
- sign foreign exchange contract - pay foreign currency payable
to received A$ on March 31

Sales Related Entries Forward Contract Related Entries

Dec-01 Inventory 60,000 Foreign Currency Receivable from exchange broker (A$)
Account Payables (A$) 60,000 Dollars Payable to Exchange broker ($)

Dec-31 Foreign currency transaction loss 1,000 Foreign Currency Receivable from exchange broker (A$)
Account Payables (A$) 1,000 Foreign currency transaction gain

NOTE: For this case, no entry necessary on January 30, 20X2

Mar-31 Account Payables (A$) 800 Foreign currency transaction loss

Foreign currency transaction gain 800 Foreign Currency Receivable from exchange broker (A$)

Mar-31 Dollars Payable to Exchange broker ($)

Cash

Foreign Currency Unit (A$)

Foreign Currency Receivable from exchange broker (A$)
Account Payables (A$) 60,200
Foreign Currency Unit (A$) 60,200
ntract Related Entries
xchange broker (A$) 60,900
60,900

xchange broker (A$) 300

300

1,000
rom exchange broker (A$) 1,000

60,900
60,900

60,200
rom exchange broker (A$) 60,200