Quality Wholesalers Inc. (Quality) imports goods from countries around the world for sale to retailers in Canada. On May 1, 2005, Quality purchased Swiss watches from a supplier in Switzerland for 200,000 Swiss francs (SF). The invoice called for payment to be made on August 31, 2005. On May 2, 2005, Quality entered into a forward contract with a bank to hedge the existing monetary position by agreeing to purchase SF200,000 on August 31, 2005, at a rate of SF1 = C$0.945. Quality’s year-end is June 30. On August 31, 2005, the forward contract was settled and the Swiss 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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May 1, 2005 May 2, 2005 June 30, 2005 August 31, 2005 SF1 = C$0.930 SF1 - C$0.930 SF1 - C$0.920 SF1 = C$0.915