On October 1, 2016, Philly Company Purchased Inventory from a Foreign

Essay

On October 1, 2016, Philly Company purchased inventory from a foreign customer for 750,000 units of foreign currency (FCU) due on January 31, 2017. Simultaneously, Philly entered into a forward contract for 750,000 units of FC for delivery on January 31, 2017, at the forward rate of $0.75. Payment was made to the foreign customer on January 31, 2017. Spot rates on October 1, December 31, and January 31, were $0.72, $0.73, and $0.76, respectively. Philly amortizes all premiums and discounts on forward contracts and closes its books on December 31.
Required:
A. Prepare all journal entries relative to the above to be made by Philly on October 1, 2016.
B. Prepare all journal entries relative to the above to be made by Philly on December 31, 2016.
C. Compute the transaction gain or loss on the forward contract that would be recorded in 2017. Indicate clearly whether the amount is a gain or loss.