Question - On July 1, 2015 the West Company purchased a 1,000,000 Pound Sterling CD from the Kardashian Bank of London. This 10% 3 year CD pays interest on June30. Additional information is as follows:
July 1, 2015 $1.85 = 1 pound sterling
December 31, 2015 $1.99 = 1 pound sterling
June 30, 2016 $1.88 = 1 pound sterling
December 31, 2016 $2.02 = 1 pound sterling
June 30, 2017 $2.05 = 1 pound sterling
December 31, 2017 $2.07 = 1 pound sterling
June 30, 2018 $2.00 = 1 pound sterling
Required -
a) Prepare all necessary journal entries made by the West Company with respect to its investment in the Kardashian CD. Hint: don't forget adjusting entries at the end of each year.
b) How much income or loss does West show in 2015, 2016, 2017 and 2018 due to its investment in Kardashian?
c) If West had purchased a forward contract on July 3rd 2015 to sell the 1 million pound sterling for $1.99 how would the income or loss of West have been different in 2015, 2016, 2017, 2018?