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On April 15, Pretty Recliners Ltd. (PRL) agreed to purchase inventory from a U.S. supplier for US$550,000. Delivery will occur on May 31, and the
On April 15, Pretty Recliners Ltd. (PRL) agreed to purchase inventory from a U.S. supplier for US$550,000. Delivery will occur on May 31, and the supplier must also be paid on that date. PRL has an April 30 year end and reports under ASPE. To hedge this risk, PRL invested in a forward contract on April 15 to purchase US$550,000 on May 31 at a forward rate of US$1 = C$0.78. Relevant exchange rates are as follows: Spot rates April 15 US$1 = C$0.80 April 30 US$1 = C$0.76 May 31 US$1 = C$0.74 Forward rates for May 31 April 15 US$1 = C$0.78 April 30 US$1 = C$0.75 PRL elects to apply hedge accounting and the transaction meets the required conditions. Which of the following represents a correct journal entry to be recorded on May 31? Question 18 options: a) DR Cash received from bank 407,000 DR Inventory 22,000 CR Cash paid to bank 429,000 b) DR Cash received from bank 407,000 DR Loss on forward contract 22,000 CR Cash paid to bank 429,000 c) DR Inventory 440,000 CR Cash 440,000 d) DR Due to bank 429,000 CR Cash 429,000 DR Cash 407,000 CR Due
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