Question

On June 19, Don Co., a U.S. company, sold and delivered merchandise on a 30-day account to Cologne GmbH, a German corporation, for 200,000 euros. On July 19, Cologne paid Don in full. Relevant currency rates were:June 19 July 19Spot rate $0.988 $0.99530-day forward rate 0.990 1.000What amount should Don record on June 19 as an account receivable for its sale to Cologne?a. $197,600b. $198,000c. $199,000d. $200,000

Answer 1

Answer:

The $197,600 is the amount which should Don record on June 19 as an account receivable for its sale to Cologne

Explanation:

Spot rate: The spot rate is that rate which is levied immediately while doing the transaction.

Forward rate: The forward rate is that rate which is not yet decided and will decide in the future.

For computing the amount which don should record on June 19 as an account receivable for its sale to Cologne, the formula is to be used which is shown below:

= Account receivable balance × June 19 Spot rate

= 200,000 euros × $0.988

= $197,600

Since in the question they ask for June 19 for the sale amount. So, we use the spot rate instead of forwarding rate because the transaction is done in the present. Thus, the forward rate is ignored.

Hence, the $197,600 is the amount which should Don record on June 19 as an account receivable for its sale to Cologne