Fire Protection Ltd. is a fire suppression company that installs sprinkler systems in commercial buildings. It is currently working on a large project and relies completely on US suppliers for its components. The company is worried about the volatility for the CDN/US currency exchange rate. Fire Protection agrees to buy $50,000 in US currency for $65,000 Canadian from MBO bank in 30 days from now. The contract is priced so that it has a $500 fair value on the issue date. On the settlement date the exchange rate is $1.25 CDN = $1 US.

Required:

a) Record the entries related to this forward contract (for the issue date and the settlement date) assuming that the contract is settled on a gross basis.

b) Record the entries related to this forward contract (for the issue date and the settlement date) assuming that the contract is settled on a net basis.

Answer rating: 100% (QA)

Fire Protection Ltd Forward Contract Entries a Settlement on Gross Basis Issue Date 30 days before s... View the full answer