Exercise 12-2 Importing and Exporting Journal Entries
During December of the current year, Teletex Systems, Inc., a company based in Seattle, Washington, entered into the following transactions:
Dec. 10 Sold seven office computers to a computer located in Colombia for 8,541,000 pesos. On this date, the spot rate was 365 pesos per U.S. Dollare.
Dec. 12 Purchased computer chips from a company domiciled in Taiwan. The contract was denominated in 500,000 Taiwan dollars. The direct exchange spot rate on this date was $.0391.
Prepare journal entries to record the transactions above on the books of Teletex Systems, Inc. The company uses a periodic inventory system.
Prepare journal entries necessary to adjust the accounts as of December 31. Assume that on December 31 the direct exchange rates were as follows:
Colombia peso $.00268
Taiwan dollar $.0351
Prepare journal entries to record settlement of both open accounts on January 10. Assume that the direct exchange rates on the settlement dates were as follows:
Colombia peso $.00320
Taiwan dollar $.0398
Prepare journal entries to record the December 10 transaction, adjust the accounts on December 31, and record settlement of the account on January 10, assuming that the transaction was denominated in dollars rather than pesos. Assume the same exchange rates as those given.
Exercise 12-12 Forward Contract Hedge of an Importing Transaction
On November 15, 2008, Solanski Inc. imported 500,000 barrels of oil from an oil company in Venezuela. Solanski agreed to pay 50,000,000 bolivars on January 15, 2009. To ensure that the dollar outlay for the purchase will not fluctuate, the company entered into a forward contract to buy 50,000,000 bolivars on January 15 at the forward rate of $.0269. Direct exchange rates on various dates were:
Spot Rule Forward Rate 1/15 Delivery
November 15 $.0239 $.0269
December 31 .0224 .0254
January 15 .0291
Solanski Inc. is a calendar-year company
The dollars to be paid on January 15, 2009, to acquire the 50,000,000 bolivars from the exchange dealer.
The dollars that would have been paid to settle the account payable had Solanski not hedged the purchased contract with the forward contract.
The discount or premium on the forward contract.
The transaction gain or loss on the exposed liability related to the oil purchase in 2008 and 2009.
The transaction gain or loss on the forward contract in 2008 and 2009.
Problem 12-4 Journal Entries-Exporting Transactions with Forward Contract Hedges
Centennial Exchange of St. Louis, Missouri, imports and exports grains. The company has a September 30 fiscal year-end. The periodic inventory system and the weighted-average cost flow method are used by the company to account for inventory cost. The company negotiated the following transactions druing 2008 (assume forward contracts exist for the Krone and Forint).
Sept. 1 Sold 1,000,000 bushels of wheat to a Norwegian company for 16,500,000 Krone. The account is to be settled on October 30.
Sept. 1 The management of Centennial was concerned that the Krone would decline in value. They therefore entered into a forward contract to sell 16,500,000 Krone on October 30 for $.1442 per Krone.
Sept. 5 Sold 1,000,000 bushels of wheat to a Tokyo company for $5,300,000. The account is to be settled on November 5.
Sept. 15 Purchased grain from an exporting company that operates in Hungary. The contract provides for the payment of 20,000,000 forint on October 15.
Sept. 15 Entered into a forward contract to buy 20,000,000 forint on October 15 for $.006490 per Forint.
Sept. 18 Sold 500 tons of soybean meal to Able & Born, Ltd., a Toronto company, for 48,000 Canadian dollars. The account is to be settled on December 17.
Oct. 15 Completed the forward contract to buy 20,000,000 forint andthen submitted payment to pay for the grain purchased on September 15.
Oct. 30 Received 16,500,000 Krones from the Norwegin customer and settled forward contract.
Nov. 5 Received payment in full for the wheat sold on September 5 to the Tokyo company.
Dec. 17 Received payment from Able & Born, Ltd. For the September 18 sale.
Direct exchange quotations for specific dates are presented below:
Norway-Krone Japan-Yen Hungary-Forint Canada-Dollar
September 1 $.1480 $.00738 $.006427 $.8250
September 5 .1458 .00740 .006428 .8248
September 15 .1456 .00741 .006430 .8246
September 18 .1456 .00737 .006431 .8245
September 30 .1455 .00736 .006433 .8243
October 15 .1458 .00734 .006435 .8241
October 30 .1457 .00732 .006370 .8241
November 5 .1456 .00730 .006439 .8244
December 17 .1453 .00731 .006438 .8250
On September 30, the forward rate for Krone (with an October 30 settlement) was $.1450 and the forward rate for Forints (with an October 15 settlement) was $.00640.
Prepare journal entries, including year-end adjustments, to record the above transactions.
Problem 12-8 Hedge of a Forecasted Sale Using a Foreign Currency Option
A U.S. company estimated that, in the first two months of 2010, its export sales to a Swiss company would generate 400,000 francs. On December 1, 2009, in an effort to protect against the weakening franc, the company purchased an option (out of the money) to sell 400,000 Swiss francs at an exchange rate of $0.60 with an expiration date of February 25, 2010. The cost of the option was $6,000. The spot rates on the following dates were:
December 1, 2009 $0.62
December 31, 2009 $0.60
February 25, 2010 $0.57
The option’s value in the options market on December 31, 2009, was $9,000. December 31 is also an interim reporting date. The option was exercised on February 25, 2006.
Prepare all journal entries needed on December 1, December 31, and February 25 to account for the option.