Orange Furniture Inc. (Orange) imports pine furniture from factories around the world for sale to retailers in Canada. On October 31, 2004, Orange bought a bedroom furniture set from a supplier in the U.S. for US$2,000. The invoice called for payment to be made on February 28, 2005. On November 1, 2004, Orange entered into a forward contract with a bank to hedge the existing monetary position by agreeing to buy US$2,000 on February 28, 2005, at a rate of US$1 = C$1.65. Orange’s year-end is December 31. On February 28, 2005, Orange settled the forward contract with the bank and the US supplier was paid.

Spot rates were as follows:

Required:

Prepare journal entries to record all of the transactions, including any adjustments required on June 30, 2005. Show your supporting calculations.

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October 31, 2004 November 1, 2004 December 31, 2004 February 28, 2005 US$1=C$1.64 US$1 = C$1.64 US$1 = C$1.66 US$1 = C$1.69