On February 1, Durham Company Writes a Forward Contract to Sell

question 43

Essay

On February 1, Durham Company writes a forward contract to sell Rubright Company 3,000,000 yen at a specific, fixed price of $0.00875 per yen with delivery in 60 days. The spot rate at the end of the 60 days is $0.00913 per yen. The following is the forward rates information throughout the 60-day term.
Assume the discount rate is 7%.
Required:
a.Compute the gain or loss for Rubright Company over the life of the contract.
b.Assume the contract is settled at the end of the 60 days, prepare the journal entries to account for this contract on Rubright's books.

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Definitions:

Accumulated Depreciation

Accumulated depreciation represents the total amount of depreciation expense that has been recorded against a fixed asset since it was acquired and put into use.

Retained Earnings

The amount of net income left over for a business after it has paid out dividends to its shareholders.

Journalizing

Journalizing is the process of recording transactions in the accounting journals as part of the double-entry bookkeeping system.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts, ultimately resetting the temporary accounts for the new fiscal period.