Jackson Ltd has a US$50,000 receivable due at the end of March 2004 for the sale of a specialised piece of hydraulic equipment.The sale was made on 1 February 2004 and the equipment cost Jackson Ltd $560,000 to manufacture.In order to hedge the receivable,Jackson Ltd enters into a futures contract on that date to sell five US dollar futures contracts.Each contract is for an amount of US$100,000 and the market rate for each futures contract is $A1 = US$0.6778 on 1 February.Jackson pays a deposit of $25,000 on the contracts.The futures contracts are settled on 31 March 2004,when the debtor pays off the receivable.The spot exchange rates during the period were:
The market rate for the futures contracts is $A1 = US$0.7150 on 31 March 2004.What are the entries to record the sale,futures contracts,receipt of payment and the settling of the futures contracts (rounded to the nearest dollar)?
A.

B.

C.

D.

E. None of the given answers.

Question

Jackson Ltd has a US$50,000 receivable due at the end of March 2004 for the sale of a specialised piece of hydraulic equipment.The sale was made on 1 February 2004 and the equipment cost Jackson Ltd $560,000 to manufacture.In order to hedge the receivable,Jackson Ltd enters into a futures contract on that date to sell five US dollar futures contracts.Each contract is for an amount of US$100,000 and the market rate for each futures contract is $A1 = US$0.6778 on 1 February.Jackson pays a deposit of $25,000 on the contracts.The futures contracts are settled on 31 March 2004,when the debtor pays off the receivable.The spot exchange rates during the period were:
  The market rate for the futures contracts is $A1 = US$0.7150 on 31 March 2004.What are the entries to record the sale,futures contracts,receipt of payment and the settling of the futures contracts (rounded to the nearest dollar)? 
A.
  
B.
  
C.
  
D.
  
E. None of the given answers.

Quizplus · Accepted Answer

1. Record the sale: 
Accounts Receivable: $50,000 
Sales: $50,000

2. Record the futures contract: 
Cash: $25,000 
Margin (asset): $25,000

3. Record the receipt of payment: 
Cash: $50,000 
Accounts Receivable: $50,000

4. Settle the futures contract: 
Margin (asset): $25,000 
Gain on futures contract: $8,600 
Cash: $33,600

Jackson Ltd Has a US$50,000 Receivable Due at the End