Levin company entered into a forward contract to speculate in the foreign currency.It sold 100,000 foreign currency units under a contract dated November 1,20X8,for delivery on January 31,20X9: In its income statement for the year ended December 31,20X8,what amount of loss should Levin report from this forward contract?
A) $0
B) $300
C) $200
D) $100

Question

Levin company entered into a forward contract to speculate in the foreign currency.It sold 100,000 foreign currency units under a contract dated November 1,20X8,for delivery on January 31,20X9:  In its income statement for the year ended December 31,20X8,what amount of loss should Levin report from this forward contract?
A) $0 
B) $300 
C) $200 
D) $100

Quizplus · Accepted Answer

Since the contract was entered into for speculation purposes, any change in the spot rate will result in a gain or loss. On December 31, 20X8, the spot rate has decreased, resulting in a loss on the forward contract. To calculate the loss, the company would need to determine the difference between the forward rate and the spot rate on December 31, 20X8, and multiply it by the number of foreign currency units sold. Based on the given information, the loss would be $300 (100,000 units x [11.00 forward rate - 10.70 spot rate]). Therefore, the correct answer is B, $300.

Levin Company Entered into a Forward Contract to Speculate in the Foreign