Homework SourseCrystal Exporting Co is a US wholesaler engaged in foreign t
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.) | ||||||||||||||||||||||||||||
Solution
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 |
