Question
On October 15, 2020, Buy Co., a Canadian company, entered into a contract to purchase goods from Sell Ltd., a foreign corporation. The contract terms
On October 15, 2020, Buy Co., a Canadian company, entered into a contract to purchase goods from Sell Ltd., a foreign corporation. The contract terms called for the goods to be delivered to Buy Co.'s Calgary location on June 30, 2021. The cost of goods is USD $600,000 to be settled on July 31, 2021.
On October 15, 2020, Buy Co. also arranged for a forward contract through its bank for USD $600,000. The goods were delivered on time, and Buy Co. settled with Sell Ltd. on July 31, 2021. Buy Co. has a May 31 year-end.
The spot and forward rates are as follows:
| Spot Rate ($CAD): 1 USD = x.xx CAD | Forward Rate ($CAD): 1 USD = x.xx CAD | |
| October 15, 2020 | $1.42 | $1.46 |
| May 31, 2021 | $1.44 | $1.48 |
| June 30, 2021 | $1.45 | $1.49 |
| July 31, 2021 | $1.50 | $1.50 |
Required Prepare Buy Co.'s journal entries to reflect the above assuming that: a. the hedge is a cash flow hedge, and b. the hedge is a fair value hedge.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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
Foundations Of Business
Authors: William M. Pride, Robert J. Hughes, Jack R. Kapoor
7th Edition
0357717945, 978-0357717943
