Prepare the effect on net income during June and July

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Question - On June 1, Bob and Dan corp. sold 100,000 dilithium matrices to Mary and Bob expect to receive payment of 1,500,000 Chinese Yuan on July 31. The following exchange rate information relates to the June 1 through July 31 period. You can assume that Bob and Dan "found" the matrices, therefore the carrying value (i.e, the cost) of the inventory is zero.

Date

Spot rate

Forward rate (July 31 delivery)

June 1

0.143

0.141

June 30

0.144

0.143

July 31

0.146

0.146

On June 1, Bob and Dan enter into a forward contract to sell 1,500,000 Yuan on July 31 based on the relevant information in the table above.

Required -

1. Provide all relevant journal entries assuming that Bob and Dan prepare financial statements on June 30, and receive the full payment as expected on July 31. Assume that Bob and Dan account for the forward contract as a fair value hedge.

2. Prepare the effect on net income during June and July.

Reference no: EM132752423

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