1. On December 1, 2013, a Canadian company purchased inventory for ‚¬500,000 payable on March 1, 2014 (the transaction is denominated in euros). It also entered into a forward contract on that date.

2. The company€™s fiscal year end is December 31.

3. The spot rate for euros (C$/euro) and the forward rates for euros on March 1, 2014, at various times are as follows:

Required
(a) Prepare the journal entries for 2013 and 2014 regarding this transaction under each of the following situations:
1. The company does not use hedge accounting.
2. The company does use hedge accounting.
3. The company follows ASPE.
(b) Indicate the balance in inventory at December 31, 2013, under each of the circumstances outlined above.
(c) Calculate the income statement effect for 2013 and 2014 under each of the circumstances above.

Transcribed Image Text:

Spot Rate C$1.05 C$1.06 Forward Rate (for 3/1/2014 euros) C$1.052 C$1.059 Transaction date: December 1, 2013 Statement of financial position date: December 31, 2013 Settlement date: March 1, 2014 C$1.07