On July 1, 2019, North Inc., based in Alberta, ordered merchandise from an American supplier for US$600,000. Delivery was scheduled for the month of October, with payment to be made in full on November 15, 2019.
Once the order was placed, North entered into a forward contract with its bank to purchase US$600,000 on the settlement date at the forward rate of CDN$1.3625. The forward contract was designated as a cash flow hedge of the cash flow required to settle with the American supplier.
The merchandise was received on October 1, 2019, when the spot rate was US$1 = CDN$1.3575. On October 31, the company's year-end, the spot rate was $1.3690. North purchased the U.S. dollars to pay its supplier on November 15, 2019 when the spot rate was CDN$1.3725. The forward rate to November 15, 2019, was CDN$1.365 on October 1 and CDN$1.37 on October 31.
A summary of the significant dates and exchange rates pertaining to this transaction are as follows:

	Spot Rates	Forward Rates*
July 1, 2019 (Order date and hedge date)	US$1 = CDN$1.3445	US$1 = CDN$1.3625
October 1, 2019 (Delivery date)	US$1 = CDN$1.3575	US$1 = CDN$1.365
October 31, 2019 (Year-end)	CDN$1.369	CDN$1.37
November 15, 2019 (Settlement date)	US$1 = CDN$1.3725	US$1 = CDN$1.3725

*for contracts expiring on November 15, 2019
What amount will be recorded as the value of the forward contract on October 31, 2019 (year-end) if the forward contract is recorded using the net method?

Multiple Choice

• A liability of CDN$4,500

• An asset of CDN$4,500

• An asset of CDN$6,000

• Nil

Answer rating: 100% (QA)

Value of merchandise CDN 600000 Delivery date October 1 2019 ... View the full answer