Toronto Importing Corp. (TIC) imports goods from countries around the world, for sale in Canada. On December 1, Year 3, TIC purchased 10,000 watches from a foreign wholesaler for DM600,000 when the spot rate was DM1 = $0.741. The invoice called for payment to be made on April 1, Year 4. On December 3, Year 3, TIC entered into a forward contract with the Royal Bank at the 120-day forward rate of DM1 = $0.781. Hedge accounting is not applied.

The fiscal year-end of TIC is December 31. On this date, the spot rate was DM1 = $0.757 and the 90-day forward rate was DM1 = $0.786. The payment to the foreign supplier was made on April 1, Year 4, when the spot rate was DM1 = $0.802.

Required:

(a)Prepare the journal entries to record

(i)the purchase and the forward contract (2 Marks)

(ii)any adjustments required on December 31, (2 Marks) and

(iii)the payment in Year 4. (5 Marks)

(b)Prepare a partial statement of financial position for TIC on December 31, Year 3 that presents the liability to the foreign supplier and the accounts associated with the forward contract. (3 Marks)