Assume that Outreach (in E6–9) hedged the 11,000 (Canadian dollar) receivable by borrowing 11,000 Canadian dollars from a Canadian bank on January 1, 2018.

Use journal entries to demonstrate how this transaction removes Outreach’s exposure to the risk of fluctuating exchange rates. Explain.

Data From Exercise 9

On January 1, 2018, Outreach Incorporated sold services to a Canadian supply company and accepted a three-year note in the amount of 11,000 Canadian dollars. Assume that exchange rates between the U.S. dollar and the Canadian dollar are as follows:

Date U.S.                                                                     Dollars per 

                                                                                Canadian Dollars
January 1, 2018 ...........................................................$0.95
December 31, 2018 ......................................................0.99
December 31, 2019 ......................................................0.90

Provide the journal entries (in U.S. dollars) prepared by Outreach to record the receipt of the note and the exchange gains/losses recognized on December 31, 2018, and December 31, 2019. Ignore any interest on the note.