On 1 May 2022, Ocean Blue Ltd Enters a Forward

question 19

Multiple Choice

On 1 May 2022, Ocean Blue Ltd enters a forward exchange contract to sell US$180 000 in 8 months' time at 31 December 2022. The relevant exchange rates are: $\begin{array}{|l|c|c|}\hline &\text { Spot Rate } & \begin{array}{c}\text { Forward Rate (for } \\\text { 31 Dec. 2022) }\end{array} \\\hline 1 \text { May 2022 } & \begin{array}{l}\text { US } \$ 1.00= \\\mathrm{A} \$ 1.00\end{array} & \begin{array}{l}\text { US } \$ 1.00= \\\mathrm{A} \$ 1.05\end{array} \\\hline \text { 30 June 2022 - end of reporting period } & \begin{array}{l}\text { US } \$ 1.00= \\\mathrm{A} \$ 0.98\end{array} & \begin{array}{l}\text { US } \$ 1.00= \\\mathrm{A} \$ 1.02\end{array} \\\hline \begin{array}{l}31 \text { December } 2022 \text { - contract settlement } \\\text { date }\end{array} & \begin{array}{l}\text { US } \$ 1.00= \\\mathrm{A} \$ 0.95\end{array} & \begin{array}{l}\text { US } \$ 1.00= \\\mathrm{A} \$ 0.95\end{array}\\\hline\end{array}$ The journal entry required at 30 June 2022 to record any foreign exchange gain or loss on the forward contract is:

• A) DR Loss of forward contract A$5400; CR Forward contract A$5400
• B) DR Loss of forward contract A$5042; CR Forward contract A$5042
• C) DR Forward contract A$5400; CR Gain on forward contract A$5400
• D) No entry is required.

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