PART A:

On October 1, 2018, the treasurer of Canada Corporation took the view that the American dollar was overvalued relative to the Canadian dollar.As a result, on that date, the company entered into a forward sales contract with its bank to sell US$2,000,000 to the bank on March 31, 2019, at the contract rate of $1.32.On March 31, 2019, the company purchased US$2,000,000 from the bank at that day's spot rate of $1.22 and settled the forward contract with the bank.

The spot rate on October 1, 2018, for the American dollar was was $1.34 and at December 31, 2018, was $1.30.The forward rate to March 31, 2019, was $1.28 on December 31, 2018.

Required:

Prepare all the journal entries to record the transactions set out above.(6 marks)

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PART B:

On October 1, 2018, Canada Corporation issued a purchase order to acquire some merchandise from a supplier in England at a cost of 300,000.The goods were to be shipped at the purchaser's risk on October 31, 2018, with payment due on January 15, 2019.On Oct 15, 2018, Canada Corporation arranged a forward contract for the purchase of 300,000 from its bank with settlement on January 15, 2019.The goods arrived on November 15, 2018, and the forward contract was settled with the bank and the supplier paid on January 15, 2019.

Canada Corporation has decided to account for the forward contract as a cash flow hedge of the firm commitment to purchase the merchandise.

Exchange rates for the purchase of British pounds () were:

Spot RateFwd Rate (to Jan 15/19)

October 1, 20181.00 = Can$1.701.00 = Can$1.74

October 15, 20181.00 = Can$1.721.00 = Can$1.76

October 31, 20181.00 = Can$1.741.00 = Can$1.77

November 15, 20181.00 = Can$1.761.00 = Can$1.78

December 31, 20181.00 = Can$1.791.00 = Can$1.80

January 15, 20191.00 = Can$1.75

Required:

Prepare all the journal entries to record the transactions set out above.(12 marks)