11. In August, our company sells inventory to a customer in Switzerland, receivable in...
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Accounting
11.
In August, our company sells inventory to a customer in Switzerland, receivable in Swiss Francs (CHF). The receivable is CHF200,000 and the exchange rate on the date of sale is $1.20:CHF1. Payment is due in 60 days. Our company feels that the $US has been over-sold and is likely to rebound during the next 60 days, thus lowering the $US equivalent of the receivable. The current forward price for 90-day delivery of $1.15 reflects our view. Since we feel that the $US is likely to strengthen even more, we purchase a forward contract to sell Swiss Francs at $1.15 60 days hence. When the receivable is collected in 60 days, the exchange rate at that date is $1. 05: CHF1.
Assume the following data relating to the spot and forward rates for the $US in relation to the CHF:
Spot rate
Forward Rate
August
$1.20 : CHF1
$1.15 : CHF1
Sept. 30
$1.10 : CHF1
$1.07 : CHF1
October
$1.05 : CHF1
$1.05 : CHF1
Required: Prepare the adjusting journal entry on September 30. This would be the regular journal entry (not the FV Hedge).
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