Answered step by step
Verified Expert Solution
Question
1 Approved Answer
David provided details around the company s largest US sale in the year and the relevant exchange rates ( Exhibit III ) . He also
David provided details around the companys largest US sale in the year and the relevant exchange rates Exhibit III He also noted that they had considered using a forward contract but ultimately chose not to
After a bit of research, you determined that the following rates were applicable to a forward contract to sell $ US settling on December : Date Forward contract rate
April
November
In SSM had a large order from a US client which resulted in a foreign exchange loss. We had considered entering into a forward currency contract but we were not confident that we knew what we were doing and so opted not to use one. We are wondering if that was a mistake on our part. We anticipate that our US sales will increase considerably over the next few years. Our goal is to have consistent sales in the US by but for now we expect to continue to have sporadic sales over the next few years as we build our reputation in the United States. I am concerned with the loss we experienced on the foreign exchange and hope you can provide us with some advice on how we can manage the risk both now and when the US sales become more consistent.
SSM does not have a US denominated bank account so all foreign source cash is converted to Canadian dollars immediately. Here is some information related to the sale that occurred in :
Date USD $ Exchange rate CDN $
Sales order received
April
$
$
Deposit received
April
$
Product delivered
November
$
Balance of payment received
December
$
REQUIRED Prepare all the journal entry assuming that David has designated the forward contract as a hedge of the sale.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started