Taste Bits Inc.purchased chocolates from Switzerland for 200,000 Swiss francs (SFr)on December 1,20X8.Payment is due on January 30,20X9.On December 1,20X8,the company also entered into a 60-day forward contract to purchase 200,000 Swiss francs.The forward contract is not designated as a hedge.The rates were as follows:

-Based on the preceding information,the entries on January 30,20X9 related to the forward contract include a:
A)Credit to Foreign Currency Units (SFr),$184,000.
B)Credit to Cash,$180,000.
C)Debit to Foreign Currency Transaction Loss,$4,000.
D)Debit to Dollars Payable to Exchange Broker,$184,000.

Question

Taste Bits Inc.purchased chocolates from Switzerland for 200,000 Swiss francs (SFr)on December 1,20X8.Payment is due on January 30,20X9.On December 1,20X8,the company also entered into a 60-day forward contract to purchase 200,000 Swiss francs.The forward contract is not designated as a hedge.The rates were as follows:
 
-Based on the preceding information,the entries on January 30,20X9 related to the forward contract include a:
A)Credit to Foreign Currency Units (SFr),$184,000. 
B)Credit to Cash,$180,000. 
C)Debit to Foreign Currency Transaction Loss,$4,000. 
D)Debit to Dollars Payable to Exchange Broker,$184,000.

Quizplus · Accepted Answer

Taste Bits Inc. has to make a payment of 200,000 Swiss francs on January 30,20X9, and they entered into a forward contract to purchase the same amount of Swiss francs on December 1,20X8. The forward contract is not designated as a hedge, so it will be accounted for as a separate transaction. As per the rates given, the company would pay $180,000 to purchase the 200,000 Swiss francs on January 30,20X9. Therefore, the entry on January 30,20X9 would be to credit the Cash account for $180,000. Neither Foreign Currency Units nor Dollars Payable to Exchange Broker is involved in this transaction, and so there would be no need to debit either of these accounts. Similarly, since the exchange rate has remained constant over the period of the transaction, there is no foreign currency transaction loss to be recognized.