Pumped Up Company purchased equipment from Switzerland for 140,000 francs on December 16, 20X7, with payment due on February 14, 20X8. On December 16, 20X7, Pumped Up also acquired a 60-day forward contract to purchase francs at a forward rate of SFr 1 = $0.45. On December 31, 20X7, the forward rate for an exchange on February 14, 20X8, is SFr 1 = $0.475. The spot rates were

Kindly check the explanation section because the answer is long.

Explanation:

(1). Date: December 16.

Details: Equipment = 140,000 × .46 = 64,400.

Accounts payable(Sfr) = 140,000 × .46 = 64,400.

Foreign currency received from broker(Sfr) = 140,000 × .45 = 63,000.

Dollar payable to exchange broker($) 140,000 × .45 = 63,000.

(2). Date: December 31.

Details= foreign currency transaction loss = 140,000 × ( .48 - .46) = 2,800

Revaluation of Accounts payable(Sfr) = 140,000 × ( .48 - .46) = 2,800

Foreign currency received from broker (Sfr) = 140,000 × (.475 - .45) = 3,500.

Foreign currency transaction gain= 140,000 × (.475 - .45) = 3,500.

(3). Date : February 14.

Details: Foreign currency transaction loss = 140,000 × (.475 - .47) = 700

Foreign currency receivable from broker = 140,000 × (.475 - .47) = 700

Account payable = 140,000 × (.47 - .48) = - 1,400 = 1,400.

Foreign currency transaction Gain= 140,000 × (.47 - .48) = - 1,400 = 1,400

Dollars payable to exchange broker = 140,000 × .45 = 63,000

Cash = (140,000 × .45) = 63,000

Foreign currency uni(Sfr) = 140,000 × .47 = 65,800.

Foreign currency receivable from broke(Sfr) = 140,000 × .47 = 65,800.

Accounts payable(Sfr) =140,000 × .47 =65,800.

Foreign currency units(Sfr) = 140,000 × .47 = 65,800.

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