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

question 35

Multiple Choice

Jackson Ltd has a US$50 000 receivable due at the end of March 2014 for the sale of a specialised piece of hydraulic equipment.The sale was made on 1 February 2014 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 A$1 = US$0.6778 on 1 February.Jackson pays a deposit of $25 000 on the contracts.The futures contracts are settled on 31 March 2014,when the debtor pays off the receivable.The spot exchange rates during the period were: $$\begin{array} { | l | l | } \hline 1 \text { February } 2014 & \text { A\$1 } = \text { US\$0.7020 } \\\hline 31 \text { March } 2014 & \text { A\$1 } = \text { USS\$.7350 } \\\hline\end{array}$$ The market rate for the futures contracts is A$1 = US$0.7150 on 31 March 2014.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) ?

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Definitions:

Profit

The financial gain made in a transaction or operation, calculated as total revenues minus total costs.

Production Function

A mathematical relationship expressing the amount of output generated from different amounts of inputs.

Profit

The financial gain obtained when the revenue generated from business activities exceeds the expenses, costs, and taxes involved in sustaining the activity.

Commodity

A fundamental merchandise in commerce that can be swapped with other merchandise of a similar nature.