## (Solved) Trojan Corporation USA borrowed 1,000,000 New Zealand dollars (NZ\$) at the beginning of the calendar

Trojan Corporation USA borrowed 1,000,000 New Zealand dollars (NZ\$) at the beginning of the calendar year when the exchange rate was account bulk chocolate from a Swiss supplier for 166,667 Swiss francs (CHF) when the spot rate is \$0.90 = CHF 1. The Swiss franc payable is due on September 1. To minimize its expo- sure to an exchange loss should the franc appreciate relative to the dollar prior to pay- ment, ACL International acquires a forward contract to exchange \$103,334 for francs on September 1 at a forward rate of \$0.92 = CHF 1. Required: Given the following exchange rate information, provide journal entries to account for the forward exchange contract on June 1, June 30, and September 1. The company closes its books quarterly. \$0.60 = NZ\$1. Before repaying this one-year loan, Trojan learns that the NZ dollar has appreciated to \$0.70 = NZ\$1. It discovers, also, that its New Zealand subsidiary has an exposed net asset position of NZ\$ 3,000,000, which will produce a translation gain upon consolidation. What is the amount of the exchange gain or loss that will be reported in consolidated income if: the U.S. dollar is the foreign operation’s functional currency? the New Zealand dollar is the foreign operation’s functional currency and Trojan Corporation. designates the New Zealand dollar borrowing as a hedge of the New Zealand affiliate’s positive exposure?

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This question was answered on: Oct 15, 2019

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