On 4/1/17, a U.S. Company commits to sell a piece of equipment to a French...
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On 4/1/17, a U.S. Company commits to sell a piece of equipment to a French customer. At that time, the U.S. company enters into a forward contract to sell foreign currency on 8/1/17 (120 days). Delivery will take place 7/1/17 with payment due on 8/1/17. The fiscal year end for the company is 6/30/17. The sales price of the equipment is 200,000 Euros. Various exchange rates are as follows:
|
| Spot | Forward |
| 4/1/17 | 1FC = $0.60 | 1FC = $0.58 |
| 6/30/17 and 7/1/17 | 1FC = $0.58 | 1FC = $0.56 |
| 8/1/17 | 1FC = $0.55 | 1FC = $0.55 |
Discount rate is 12%.
What is the amount in the Firm Commitment account on 6/30/17?
| a. | 4,000 debit |
| b. | 8,000 debit |
| c. | 4,000 credit |
| d. | 10,000 credit |
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