Part A: Answers to 1) - 3) are based on the following information

TEL is based in Toronto, Ontario. It imports digital products from Europe and sells it to dealers throughout North America. It has a December 31 fiscal year end.

On November 1, 2019, TEL signed a non-binding contract to sell products for cash with a customer in the United States for $950,000 USD. Under the terms of the contract, the products were delivered on January 31, 2020. On November 30, 2019, TEL hedged the transaction by entering a forward contract to sell $950,000 USD to its bank on January 31, 2020 at a rate of $1USD = $1.20 CAN.

Exchange rates were as follows:

$ 1 USD = CAN$

Spot rate Forward rate

January 1, 2019 1.0 .99

November 1, 2019 1.2 1.3

November 30, 2019 1.3 1.2

December 25, 2019 1.5 1.3

December 31, 2019 1.4 1.5

January 31, 2020 1.3 1.4

1. What is the amount of the hedging item that was reported on TELs separate -entity balance sheet as of Dec 31, 2019? Should the item be reported as assets or liabilities?

1. Provide a summary of the transaction and comment on the effectiveness of the hedge on the settlement day using supportive numbers, assuming no hedge accounting.

1. If the firm wants to report a favourable asset turnover ratio for 2020, should the firm use hedge accounting or not?