Question

On December 10, 2020, Robin Franchises, a U.S. company, received a purchase order from a U.K. customer for delivery of merchandise on January 15, 2021. The price of the merchandise is £10,000,000, payable on March 15, 2021, in pounds. To hedge its exposure to exchange rate changes, on December 10, 2020, Robin entered a forward contract for delivery of £10,000,000 to the broker on March 15, 2021. The merchandise was delivered as scheduled. On March 15, 2021, Robin received payment from the customer, and delivered the pounds to the broker to close the forward contract. Robin’s accounting year ends December 31. Exchange rates ($/£) are as follows:

Forward rate for delivery March 15, 2021 $1.3161 Spot rate $1.3160 1.3162 1.3165 1.3180 December 10, 2020 December 31, 2020 January 15, 2021 March 15, 2021 1.3163 1.3167

Prepare the journal entries Robin Franchises made on January 15, 2021 and March 15, 2021 to record the above transactions, as well as its end-of-year adjusting entries on December 31, 2020.

Please help, as I am unable to understand how to find these answers.

Answer 1

12/31/20	Exchange loss (10000000*(1.3162-1.3160))	$              2,000
	Investment in forward contract		$              2,000
	(To record loss on forward contract)
	Firm commitment (10000000*(1.3163-1.3161))	$              2,000
	Exchange gain		$              2,000
	(To record gain on U.S. dollor value on the firm commitment)
1/15/21	Exchange loss (10000000*(1.3167-1.3163))	$              4,000
	Investment in forward contract		$              4,000
	(To record loss on forward contract)
	Firm commitment (10000000*(1.3165-1.3162))	$              3,000
	Exchange gain		$              3,000
	(To record gain on U.S. dollor value on the firm commitment)
	Accounts receivable (10000000*1.3165)	$ 1,31,65,000
	Sales revenue		$ 1,31,65,000
	(To record delivery of goods to customer)
	Sales revenue	$              5,000
	Firm commitment (2000+3000)		$              5,000
	(To adjust sales revenue for the change in value of firm commitment)
3/15/21	Accounts receivable	$            15,000
	Exchange gain (10000000*(1.3180-1.3165))		$            15,000
	(To record gain or loss on accounts receivable)
	Exchange loss (10000000*(1.3180-1.3167))	$            13,000
	Investment in forward contract		$            13,000
	(To record loss on forward contract)
	Foreign currency (10000000*1.3180)	$ 1,31,80,000
	Accounts receivable		$ 1,31,80,000
	(To record receipt of pounds from U.K. Customer)
	Cash (10000000*1.3161)	$ 1,31,61,000
	Investment in forward contract (2400+800)	$            19,000
	Foreign currency		$ 1,31,80,000
	(To record delivery of currency to the delaer and settlement of forward contract)