A US Company Buys Merchandise on a Regular Basis from U

Essay

A U.S. company buys merchandise on a regular basis from U.K. suppliers, with payment to be made in pounds. On March 20, 2020, the company takes delivery of merchandise costing £100,000 from a U.K. supplier, with payment to be made on July 20, 2020. On March 20, the company enters a forward contract for delivery of £100,000 on July 20. On July 20, the company closes the contract and pays the supplier. The company has a June 30 year-end. Spot and forward rates ($/£) are as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { July 20, 2020 Delivery }\end{array} \\\hline \text { March 20, 2020 } & \$ 1.322 & \$ 1.330 \\\hline \text { June 30, 2020 } & 1.346 & 1.344 \\\hline \text { July 20, 2020 } & 1.339 & 1.339 \\\hline\end{array}$$ Required
Fill in the amounts below, appearing on the U.S. company's financial statements.
a. Investment in forward contract, June 30, 2020 balance sheet. Indicate whether it is an asset or a liability.
b. Gain or loss on forward contract, fiscal 2021 income statement. Indicate whether it is a gain or loss.
c. Gain or loss on accounts payable, fiscal 2021 income statement. Indicate whether it is a gain or loss.