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Prepare the journal entries that would be made by Bell

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Question - Bell Company was incorporated in 2015 and engaged in foreign currency transactions. The following exchange rates were quoted on the indicated dates:

 

Spot Rate

Forward Rate March 1 Delivery

2-Nov-2017

$1.6021

$1.5920

31-Dec-2017

$1.5820

$1.5800

1-Mar-2018

$1.6543

 

Bell Company's fiscal year-end is December 31.

Required -

A. Assume that on November 2, 2017 Bell recorded a sale of goods on account for £50,000 to be paid on March 1, 2018. Prepare the journal entries that would be made by Bell on November 2, December 31, and March 1 to record the sale, adjust the accounts related, and to record the receipt of the payment.

B. Assume that On November 2, 2017, Bell entered into a forward contract to sell £50,000 for $1.5920 per pound on March 1, 2018. The contract was entered into to speculate in future exchange rate fluctua­tions. Prepare the journal entries that would be made by Bell on November 2, December 31, and March 1.

C. Compute the effect of the transactions in (A) and (B) on the net income for the fis­cal years ended December 31, 2017, and December 31, 2018.

Reference no: EM132886248

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