Assignment 3

This assignment should be completed after Chapter 12. It contributes 10% toward your final grade. Remember to show all your work as partial marks may be awarded.

Question 1 (15 marks)

On June 1, 2014, Fleming Co. sold goods to BFF Ltd. for FC 200,000 and entered into a 90-day forward contract with a financial institution to deliver FC 200,000. Fleming expects to collect payment from BFF in 90 days. Fleming has a July 31 year-end.

Selected exchange rates are presented below: Spot Rate Forward rate to August 30

June 1, 2014 FC1= $1.5717 CAD FC1= $1.5702 CAD

July 31, 2014 FC1= $1.5600 CAD FC1= $1.5594 CAD

August 30, 2014 FC1= $1.5500 CAD

Required:

Prepare dated journal entries for Fleming to reflect the above transactions using the current method. Do not use hedge accounting.

Prepare dated journal entries for Fleming to reflect the above transactions using the net method. Do not use hedge accounting.

Explain how your journal entry on the settlement date would change if the receivable was hedged.

Question 2 (55 marks)

In 2015, Corbus Co., a Canadian company, created a foreign subsidiary called Snazzy Ltd. by investing $2,000,000 CAD (800,000 FC) in return for all of Snazzy