Question

On November 1, 2017, National Company sold inventory to a foreign customer. The account will be settled on March 1 with the receipt of 200,000 foreign currency units (FCU). On November 1, National also entered into a forward contract to hedge the exposed asset. The forward rate is $0.80 per unit of foreign currency. National has a December 31 fiscal year-end. Spot rates on relevant dates were:

Answer 1

$162,000 and $4,000 loss

Step-by-step explanation:

The computation of the adjusted basis in the account receivable and the gain or loss is as follows:

As on Nov 1, the foreign currency rate on date of sale is $0.83

The account receivable should be recorded at

= 200,000 × $0.83

= $166,000

Now the foreign currency rate is reduced to $0.81

So the loss is recorded

= ($0.83 - $0.81) × $2,00,000

= $4,000 loss

And, Receivable balance on Dec 31 is

= $166,000 - $4,000

= $162,000