Option #1_ Scandinavia Corporation .docx - Running head SCANDINAVIA CORPORATION Scandinavia Corporation Dianna Samuels-Ball ACT520 International

Option #1_ Scandinavia Corporation .docx - Running head...

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Running head: SCANDINAVIA CORPORATION 1Scandinavia Corporation Dianna Samuels-BallACT520 - International AccountingColorado State University – Global CampusDr. Arlene B. Goodman September 5, 2018
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SCANDINAVIA CORPORATION 2IntroductionAs companies conduct business internationally they enter into what is called forward exchange contracts with foreign currency brokers for the exchange of different currencies at specified rates at specified future dates (Christensen, Cottrell & Budd, 2016). According to Bragg (2018), when a business signs an agreement to purchase a specific amount of foreign currency on a specific future date this is called a forward exchange contract. Bragg (2018) further states that, this exchange rate is purchased at a predetermined rate and the purpose of this contract is to provide the buyer with protection from subsequent fluctuations in a foreign currency exchange rate. The ultimate goal is prevent a loss on the foreign exchange or to potentially generate a gain based on changes in the exchange rate. According to Christensen et al (2016), forward exchange contracts are commonly used for managing an exposed foreign currency position of either a net asset or a net liability position. The spot rate is considered to be the current price of the asset required for the immediate settlement of the spot contract, whereas, forward rate is usedto determine a financial transaction taking place on a future date of which that rate is the settlement price of the forward contract (Nickolas, 2017).Option #1: Journal entries required related to the foreign transaction and the forwardcontract on the books of Scandinavia Corporation Scandinavia Corporation sold machinery to a Swedish Company for 200,000 kroner (SKr) on April 20, Year 1 with settlement to be in 60 days. On that same date, Scandinavia entered into a 60-day forward contract to sell 200,000 SKr at a forward rate of 1 SKr = $0.167 to manage its exposed foreign currency receivable. The forward contract is NOT designated as a hedge. The spot rates were as follows: April 20, Year 1: 1 SKr = $0.170; June 19, Year 1: 1 SKr =
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