Following are transactions of Import Ltd., a company engaged in importing products into Canada.

Required:

Parts a and b, below, are based on different policies regarding hedging. Answer each part as an independent problem.

a. Import Ltd. did not hedge or cover its exchange risk position. Prepare the journal entries for 2005. The company has a December 31 year-end.

b. At the time of each transaction, Import Ltd. paid $100 for a forward contract, which was a perfect and complete hedge against the foreign exchange risk.
Prepare the journal entries for 2005. The company has a December 31 year-end.

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September 1, 2005: October 1, 2005: November 1, 2005: Incurred a liability for 1,000,000 pesos, due February 1, 2006, for pur- chasing inventory. Incurred a liability for 6,000,000 yen, due November 1, 2006, for pur- chasing inventory. Incurred a liability for 22,000 Russian rubles, due March 1, 2007, for purchasing inventory.