On September 7, 2005, Biran Limited signed a contract to buy equipment from a U.S. manufacturer. The price of the equipment was US$500,000. On the same date, Biran entered into a forward contract with the bank to buy US$400,000 on February 1, 2006. Biran designated the forward contract as a hedge of the outstanding purchase commitment on the equipment.

The equipment is to be delivered no later than December 1, 2005. Biran made a 20% down payment on September 7, 2005, and signed a promise to pay the balance on or before February 1, 2006. The exchange rates are:

The forward contract rate on September 7, 2005, was C$1.00 = US$0.71.
The equipment was delivered on schedule. Biran paid the manufacturer and closed out the forward contract on February 1, 2006.

Required:
Record the journal entries to record the purchase and the related hedge for 2005 and 2006. Biran’s fiscal year ends on December 31. Ignore amortization of the equipment.

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September 7, 2005 December 1, 2005 December 31, 2005 February 1, 2006 C$1.00 = US$0.72 C$1.00 = US$0.70 C$1.00 = US$0.65 C$1.00=US$0.68