Taste Bits Inc.purchased chocolates from Switzerland for 200,000 Swiss francs (SFr)on December 1,2008.Payment is due on January 30,2009.On December 1,2008,the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs.The forward contract is not designated as a hedge.The rates were as follows:

-Based on the preceding information,the entries on January 30,2009,include a:
A)Credit to Foreign Currency Units (SFr),$184,000.
B)Credit to Cash,$180,000.
C)Debit to Foreign Currency Transaction Loss,$4,000.
D)Debit to Dollars Payable to Exchange Broker,$184,000.

Question

Taste Bits Inc.purchased chocolates from Switzerland for 200,000 Swiss francs (SFr)on December 1,2008.Payment is due on January 30,2009.On December 1,2008,the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs.The forward contract is not designated as a hedge.The rates were as follows:
 
-Based on the preceding information,the entries on January 30,2009,include a:
A)Credit to Foreign Currency Units (SFr),$184,000. 
B)Credit to Cash,$180,000. 
C)Debit to Foreign Currency Transaction Loss,$4,000. 
D)Debit to Dollars Payable to Exchange Broker,$184,000.

Quizplus · Accepted Answer

The payment of 200,000 Swiss francs will result in a credit to cash since the company is paying in their functional currency. The forward contract is not designated as a hedge, so it will not impact the accounting entries on January 30, 2009. Therefore, option B is the correct answer.