On January 1, Year 5, Fruit Inc., a B.C. company, bought Peaches from Superfoods., a foreign...

 

Transcribed Image Text:

On January 1, Year 5, Fruit Inc., a B.C. company, bought Peaches from Superfoods., a foreign company, for FC400,000, with payment due on May 1, Year 5. On the same date, Fruit entered into a forward contract with the bank to buy foreign currency (FC) on May 1, Year 5 at a rate of FC1 = C$2.00. The forward contract was designated as a fair value hedge. On May 1, Year 5, Fruit settled the forward contract with the bank. Spot exchange rates were as follows: January 1 May 1 FC1=C$2.10 FC1 = C$2.03 Required: a) Prepare the memorandum and journal entries to record the above transactions. b) Calculate the discount or premium (state which one) and explain (along with allocation of dollar values) how it is allocated. On January 1, Year 5, Fruit Inc., a B.C. company, bought Peaches from Superfoods., a foreign company, for FC400,000, with payment due on May 1, Year 5. On the same date, Fruit entered into a forward contract with the bank to buy foreign currency (FC) on May 1, Year 5 at a rate of FC1 = C$2.00. The forward contract was designated as a fair value hedge. On May 1, Year 5, Fruit settled the forward contract with the bank. Spot exchange rates were as follows: January 1 May 1 FC1=C$2.10 FC1 = C$2.03 Required: a) Prepare the memorandum and journal entries to record the above transactions. b) Calculate the discount or premium (state which one) and explain (along with allocation of dollar values) how it is allocated.

Answer rating: 100% (QA)

Part A Journal Entries January 1 Year 5 No Accounting entry as on this dat... View the full answer