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On January 1, 2018, ABC Inc. entered into a forward contract to purchase U.S. $6,000 for $6,336 Canadian in 30 days. On January 20, the
On January 1, 2018, ABC Inc. entered into a forward contract to purchase U.S. $6,000 for $6,336 Canadian in 30 days. On January 20, the fair value of the contract was $60 (reflecting the present value of the future cash flows under the contract). Assume that the company would like to update its records on January 20.
(a) Prepare only the necessary journal entries on January 1 and 20, 2018.
(b) Explain which financial risks the transaction exposes the entity to and why.
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