Question

On September 1, 2020, Pronghorn entered into a future contract to sell US $100,000 for CDN $1.20, which was the market value on September 1. The broker with whom Pronghorn arranged the contract required a 10% deposit, which Pronghorn paid in cash. On December 31, Pronghorn’s year-end, the price per $US was CDN $1.25. On January 1, Pronghorn closed out the contract at the same exchange rate, settling without delivering the cash.

Prepare the journal entries to record the futures contract. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

a.

(To record loss on derivative.)

b.

(To record additional deposit.)

c.

(To close out derivative contract.)

Answer 1

Journal entries

Account Name	Debit	Credit	Description/Narration
Loss on Future Contracts	5,000		Loss on derivative recorded
Payable to broker		5,000	Loss on derivative recorded
($ 100,000 * 0.05)
No entry	0		No additional deposit required
No entry		0	No additional deposit required
(The broker is already having extra deposit than required, as the initial deposit was $ 12,000 and loss in only $ 5,000
Cash	7,000		extra deposit after settling the loss returned by the broker
Payable to broker	5,000		Loss on contract adjusted with the deposit
Deposit with broker		12,000	Loss on contract adjusted with the deposit
(Derivative contract closed)