On July 2, 2019, Great Wall (GW) Inc. purchased merchandise from a supplier in the U.S. for US$800,000 with terms requiring full payment by October 31, 2019. On July 2, 2019, GW entered a forward contract to purchase US$800,000 on October 31, 2019 at a rate of CDN$1.2275. The forward contract was designated as a hedge of the fair value of the amount due to the supplier.

On October 31, 2019, GW paid its supplier in full. Selected dates and spot rates are shown below:

July 2, 2019

CDN $1.2150

July 31, 2019

CDN $1.2175

October 31, 2019

CDN $1.22

GW has a July 31^styear end. On that date the forward rate for US dollars for three months was CDN $1.2225.

Prepare the journal entries assuming that no forward contract was entered.

 

Answer rating: 100% (QA)

Without the forward contract Great Wall GW Inc would be exposed to exchange rate risk as fluctuation... View the full answer