Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company used a periodic inventory system and is ona calendar-year basis. All exchange rates are direct quotations.
Dec. 1 Crystal Exporting purchased merchandise from Chang's Ltd., a Hong Kong manufacturer. The invoice was 210,000 Hong Kong dollars, payable on April 1. On this same date, Crystal Exporting acquired a forward contract to buy 210,000 Hong Kong dollars on April 1 for $.1314.
Dec. 29 Crystal Exporting sold merchandise to Zintel Retailers for 120,000 Hong Kong dollars, receivable in 90 days. No hedging was involved.
April 1 Crystal Exporting received 120,000 Hong Kong dollars from Zintel Retailers.
1 Crystal Exporting submitted full payment of 210,000 Hong Kong dollars to Chang's, Ltd., after obtaining the 210,000 Hong Kong dollars on its forward contract.
Spot rates and the forward rates for the Hong Kong dollar were as follows:
Spot Rate Forward rate for Apr. 1 Delivery
Dec 1 $.1265 $.1314
Dec. 29 $.1240 $.1305
Dec. 31 $.1259 $.1308
April 1 $.1430
A. Prepare journal entries for the transactions including the necessary adjustments on December 31.
B. describe the income statement treatment given to any transaction gains and losses recognized at December 31.