A US company sold merchandise to a Germany base company for 1,400,000 Krone. The receivable is denominated in Krone. On the transaction date, the spot rate for Krone was 1Krone=$0.14.
To protect itself against a weakening of the Krone, the US firm entered into a forward exchange contract to deliver 1,400,000 Krone on 01/30/04, the settlement date for the sale. The 90-day forward exchange rate specified in the contract was 1Krone= $0.139. Exchange rate on 12/31/03 and 01/30/04 were as follows:
Spot Rate Fwd Exchange
($1Krone) Rate ($/1Krone)
12/31/ 03 $0.135 $0.133 (30 day)
01/30/04 $0.137
Record all journal entries. (Show all computation) on the book of the US company on 11/01/2003, 12/2003 (Balance sheet date), and 01/03/04.