On October 2, 2013, a Canadian company contracts with a U.S. winery for delivery from the winery
Question:
On October 2, 2013, a Canadian company contracts with a U.S. winery for delivery from the winery of 1,000 cases of wine at a price of U.S. $100,000. The wine is to be delivered February 1, 2014, and payment made in U.S. dollars on March 31, 2014. In order to hedge this future commitment, the Canadian company purchases U.S. $100,000 for delivery in 180 days at a forward exchange rate of $C1 = $US 0.775. The company has a December 31 year end.
Required
(a) Prepare the journal entries in 2013 and 2014 assuming that hedge accounting is not used.
(b) Prepare the journal entries in 2013 and 2014 assuming that the Canadian company has elected to use hedge accounting.
(c) Prepare the journal entries in 2013 and 2014 assuming that the Canadian company has elected to follow ASPE and uses hedge accounting.
(d) Indicate the balances in inventory, derivatives on the statement of financial position and the foreign exchange gains or losses on the statement of comprehensive income for 2013 and 2014 year-end under each of the scenarios above.
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
October 2 2013 No entry is required at this point as there is no gain or loss on the day that the contract is entered into December 31 2013 Dr Derivative asset 2547 Cr Fair value gain NI 2547 US 10000...View the full answer
