Question

Diamond Limited began purchasing parts from China. The Chinese currency is the renminbi (RMB). Diamond entered into the following transactions in 20X1 and 20X2:
November 1, 20X1 Ordered machine parts from the Chinese supplier for RMB 2,000,000. The supplier promised to deliver the machine parts at the beginning of December, and payment is expected on January 15, 20X2.
December 1, 20X1 Received shipment of the machine parts.
December 31, 20X1 Acquired a forward contract to receive RMB 2,000,000 on January 15, 20X2, as a hedge of the account payable to the Chinese supplier. The forward contract rate was RMB1 C$ 0.16. Diamond treats all forward contracts as executor contracts.
January 15, 20X2 Received RMB 2,000,000 on the forward contract; paid RMB 2,000,000 to the Chinese supplier in settlement of the payable.
Spot rates were as follows:
November 1, 20X1................... RMB1 = C$ 0.15
December 1, 20X1.................... RMB1 = C$ 0.18
December 31, 20X1................... RMB1 = C$ 0.17
January 15, 20X2.................... RMB1 = C$ 0.19

Required
Prepare the journal entries for these transactions, including any adjusting entries needed at the December 31, 20X1, fiscal year-end. Specify if no entry is required on any specific date(s).



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  • CreatedMarch 13, 2015
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