Foreign Currency Transaction Exercise 1:
(Shortened URL: bit.ly/FC_Exercise1)
On April 1, a US manufacturer enters into a commitment to sell equipment to a British importer with the sale denominated in British pounds sterling, £200. The goods are to be delivered the same day and paid for on June 30.
Assume the following exchange rates between the US dollar ($ or USD) and the British pound sterling (£ or BP):
a. Assuming that no forward contract is entered into, what would be the journal entries for the US exporter on April 1, April 30, May 31, and June 30?
b. Assuming that a forward contract is entered into on April 1, what would be the journal entries for the US exporter on April 1, April 30, May 31, and June 30?
HINT: An example of journal entries for a foreign-currency-based transaction is at: http://bit.ly/FCtransaction.