On November 15, 2016, a U.S. company issues a purchase order to a Canadian supplier for merchandise

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On November 15, 2016, a U.S. company issues a purchase order to a Canadian supplier for merchandise costing C\($1,000,000\). On the same date, the company enters a forward contract locking in the U.S. dollar purchase price of C\($1,000,000\), for delivery on April 15, 2017. The forward qualifies as a hedge of the firm commitment. Delivery of the merchandise takes place on March 1, 2017, and the forward contract is closed and payment is made to the supplier on April 15, 2017. How is the forward contract reported on the company’s December 31, 2016, balance sheet?

Use the following forward and spot prices for Canadian dollars (C\($)\) to answer this question. The prices are in U.S. dollars (\($/C$).

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a. \($60,000\) asset

b. \($60,000\) liability

c. \($55,000\) liability

d. \($55,000\) asset

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Advanced Accounting

ISBN: 978-1618531513

3rd Edition

Authors: Susan S. Hamlen

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