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13. In August, our company sells inventory to a customer in Switzerland, receivable in...

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Accounting

13.

In August, our company sells inventory to a customer in Switzerland, receivable in Swiss Francs (CHF). The receivable is CHF200,000 and the exchange rate on the date of sale is $1.20:CHF1. Payment is due in 60 days. Our company feels that the $US has been over-sold and is likely to rebound during the next 60 days, thus lowering the $US equivalent of the receivable. The current forward price for 90-day delivery of $1.15 reflects our view. Since we feel that the $US is likely to strengthen even more, we purchase a forward contract to sell Swiss Francs at $1.15 60 days hence. When the receivable is collected in 60 days, the exchange rate at that date is $1. 05: CHF1.

Assume the following data relating to the spot and forward rates for the $US in relation to the CHF:

Spot rate

Forward Rate

August

$1.20 : CHF1

$1.15 : CHF1

Sept. 30

$1.10 : CHF1

$1.07 : CHF1

October

$1.05 : CHF1

$1.05 : CHF1

Required: Prepare the OCTOBER entries to record the collection of the accounts receivable. This would be the regular journal entries (not the FV Hedge).

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