Question $4(12$ marks$)$ Module $-7$

Face lovely Inc. sells face creams to worldwide. On December $1,2020$ the company shipped its largest

order yet, $$500,000$ AUD worth of face cream to a merchandising company in the Australia with payment

terms of $90$ days. In order to mitigate any FX risks, the company decided to enter into a hedge. On

December $4,2020,$ the company signed a hedge with a Canadian bank at the $90$ day forward rate of AUD

$$1=$ CAD $$1\mathrm{.}2745.$ The forward contract was designated as a fair value hedge of the amount due from

the Australian customer.

Face lovely Inc. received payment from its Australian client on March $1,2021.$ The company's year end is

December $31.$ The $2-$month forward rate for AUD was CAD $$1\mathrm{.}255$ on that date. Selected spot rates were

as follows:

Required:

a$)$ What amounts arising from these transactions, if any, would appear on the balance sheet of

Morgan Manufacturing Inc. as at December $31,2020$:

i$.$ Accounts Receivable

ii$.$ Net foreign exchange position $($clearly state if this is a debit or credit balance$)$

iii. Accumulated $($cumulative$)$ other comprehensive income

b$)$ What amounts arising from these transactions, if any, would be recorded as exchange gains or

losses $($included in net income$)$:

i$.$ for the year ended December $31,2020$

ii$.$ for the year ended December $31,2021$