Prepare journal entries to record initial sale of kiwifruit

Assignment Help Financial Management

Reference no: EM131566822

Kfruit Ltd, a New Zealand company, sells kiwifruit overseas. Its functional currency is the New Zealand dollar. The company has issued an invoice for US$700,000 receivable in two months’ time. The spot rate of exchange at the date of the invoice is 0.80 (that is, US$0.80 buys NZ$1.00). To hedge the currency risk, the company buys a put option, which gives it the right to sell US$ at an agreed exercise price of 0.81 (that is, US$0.81 would buy NZ$1.00 if the put is exercised). The put costs NZ$5,000.

REQUIRED:

(a) Prepare the journal entries to record the initial sale of kiwifruit and the purchase of the put option. Round figures to the nearest dollar.

(b) Assume the spot rate of exchange is 0.82 after two months (when the receivable pays). Prepare the journal entries at the time of receipt. Round figures to the nearest dollar.

(c) At expiry of the put option, use the relevant amounts in your answers for part (b) of this question to explain whether or not the company should exercise the option.

Reference no: EM131566822

Questions Cloud

Essay should employers be able to fire employees : Should employers be able to fire or discipline employees for what they say or do online

Developing states face on their road to development : There are several reasons why foreign aid is not resolving poverty in the Third World. What are some of them and what can be done to correct this problem?

Discuss what is the cash flow diagram : If you deposits $600 now, $300 two years from now and $400 five years from now, how much will you have in your account 10 years from now if the interest rate.

What is the dollar value of an zero one for the bond : What is the dollar value of an 01 for the bond?

Prepare journal entries to record initial sale of kiwifruit : Prepare the journal entries to record the initial sale of kiwifruit and the purchase of the put option.

What compressive load can be carried with a safety factor : A steel angle iron, loaded in compression is added to a structure in order to increase its rigidity. Although the two ends are attached by rivets.

Calculate accounts receivable turnover : Calculate accounts receivable turnover (ART) for 2012 and 2011. Accounts receivable in 2010 totaled $5,335 million. Has ART improved during the year

What other areas of growth are likely to be pursued : Do you think that Google is financially successful in their online advertising business model? Explain why or why not.

What is the probability they are younger : Data collected from cape town shows that 60% of drivers are above 30 years old. 5% of all the drivers over 30 will be prosecuted for a driving offense during.

User Account

All Pages