Tinitoys,Inc. ,a domestic company,purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br.reals)on May 1,20X2.Payment is due on June 30,20X2.On May 1,20X2,Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals.The forward contract is not designated as a hedge.Tinitoys' fiscal year ends on May 31.The direct exchange rates were as follows:

-Based on the preceding information,the entries on June 30,20X2,include a
A)debit to Dollars Payable to Exchange Broker,$262,500.
B)credit to Cash,$254,000.
C)credit to Premium on Forward Contract,$6,000.
D)credit to Foreign Currency Receivable from Exchange Broker,$262,500.

Question

Tinitoys,Inc. ,a domestic company,purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br.reals)on May 1,20X2.Payment is due on June 30,20X2.On May 1,20X2,Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals.The forward contract is not designated as a hedge.Tinitoys' fiscal year ends on May 31.The direct exchange rates were as follows:
 
-Based on the preceding information,the entries on June 30,20X2,include a
A)debit to Dollars Payable to Exchange Broker,$262,500. 
B)credit to Cash,$254,000. 
C)credit to Premium on Forward Contract,$6,000. 
D)credit to Foreign Currency Receivable from Exchange Broker,$262,500.

Quizplus · Accepted Answer

The entry on June 30, 20X2, would include a debit to Dollars Payable to Exchange Broker for $262,500, as this represents the amount payable in dollars for the foreign currency transaction.