On April 1, 2012, Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton. Button agrees to purchase (and Bows agrees to sell) 100,000 pounds of cotton at $1.19 per pound, six months from the date of agreement. On October 1, 2012, the price of cotton is $1.17 per pound. The contract allows for net settlement.
Determine the net settlement on the forward contract.
6) Crabby Industries, a U.S. corporation, purchased inventory from a company in Sweden on November 18, 2011 when the Swedish krona was trading at 1 krona = $0.161. The transaction was for 600,000 krona, and was to be paid in krona in 90 days. Crabby closed their books at December 31 for financial reporting purposes when the krona was trading at $0.167. On February 16, 2012, Crabby paid the invoice when the krona was trading at $0.156.
Show the journal entries recorded by Crabby on November 18, 2011, December 31, 2011, and February 16, 2012.
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