Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On October 1, 2018, Aquaman Company purchased inventory from Storm Surge Corporation for euro () 200,000, with payment due on February 1, 2019. On October

image text in transcribed

On October 1, 2018, Aquaman Company purchased inventory from Storm Surge Corporation for euro () 200,000, with payment due on February 1, 2019. On October 1, 2018, Storm Surge delivered the inventory to Aquaman from its Toronto warehouse. Aquaman immediately hedged 170,000 of the payable by buying a forward contract (at no cost) expiring on February 1, 2019.

The following exchange rates occurred during the period (the forward rates shown all pertain to forward contracts expiring on February 1, 2019):

image text in transcribed

a) Indicate how the hedge entered into by Aquaman on October 1, 2018 should be classified. Support your answer with facts from the question and discuss how effective this hedge would be.

b) Prepare the journal entries or disclosure to be recorded by Aquaman for the accounts payable and the fair value hedge on the following dates:

i) October 1, 2018

ii) December 31, 2018

iii) February 1, 2019

c) Calculate the exchange gain or loss on both the accounts payable and the forward contract to be reported for the year ended December 31, 2019 (January 1 December 31, 2019)

October 1, 2018 December 31, 2018 February 1, 2019 Spot Rate 1 = C$1.40 1 = C$1.48 1 = C$1.52 Forward Rate 1 = C$1.50 1 = C$1.59 1 = C$1.52 == = =

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting

Authors: Charles T. Horngren, Walter T. Harrison Jr., Jo Ann L. Johnston, Carol A. Meissner, Peter R. Norwood

9th Canadian Edition volume 2

013269008X, 978-0133122855, 133122859, 978-0132690089

More Books

Students also viewed these Accounting questions

Question

the relationship between power, effect size and probability levels

Answered: 1 week ago

Question

=+c) Why did the researcher remove the Rent Index from the model?

Answered: 1 week ago

Question

Explain all drawbacks of application procedure.

Answered: 1 week ago