Question

Terrace Ltd., a manufacturer of motorcycles located in Burnaby, British Columbia, successfully negotiated a contract to sell 100 small motorcycles to the police department of Fairbanks, Alaska. The contract price for the cycles was US$ 10,000 each. The contract was signed on May 12, 20X6, with payment to be made by October 1. Terrace then entered into a forward contract to hedge against changes in the US dollar exchange rate.
Delivery of the motorcycles began on July 5 and continued in 20-cycle lots at two-week intervals until the last delivery on August 30, 20X6. The buyer then paid the US$ 1,000,000 contract price when due, and Terrace settled with the bank. The exchange rates were as follows:


Required
1. What amounts relating to the sale and the hedge would appear on Terrace’s SCI and SFP for the year ended December 31, 20X6?
2. Assume instead that Terrace’s year- end was May 31. What amounts would appear on Terrace’s financial statements at May 31, 20X6?
3. Assume that Terrace’s year- end was May 31 and Terrace designated the hedge as a cash flow hedge. What amounts would appear on Terrace’s financial statements at May 31,20X6?


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  • CreatedMarch 13, 2015
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