Assume that Barun agrees to purchase US$500,000 for C$550,000 on January 15,2013.The exchange rate at year end is US$1 = C$0.95 and the January 15,2013 exchange rate is US$1 = C$0.97.What journal entry is required at Jan 15,2013?
A)$10,000 gain.
B)$10,000 loss.
C)$75,000 gain.
D)$75,000 loss.

Question

Quizplus · Accepted Answer

The correct answer is A because the gain on forward contract is calculated as the difference between the forward rate and the spot rate multiplied by the number of units of foreign currency contracted. In this case, the forward rate is US$1 = C$0.97 and the spot rate is US$1 = C$0.95. The gain is therefore (0.97 - 0.95) * 500,000 = $10,000.

Assume That Barun Agrees to Purchase US$500,000 for C$550,000 on January