Terrace Ltd., a manufacturer of motorcycles located in Burnaby, British Columbia, successfully negotiated a contract to sell 100 small motorcycles to the police department of Fairbanks, Alaska. The contract price for the cycles was US$ 10,000 each. The contract was signed on May 12, 20X6, with payment to be made by October 1. Terrace then entered into a forward contract to hedge against changes in the US dollar exchange rate.
Delivery of the motorcycles began on July 5 and continued in 20-cycle lots at two-week intervals until the last delivery on August 30, 20X6. The buyer then paid the US$ 1,000,000 contract price when due, and Terrace settled with the bank. The exchange rates were as follows:

Required
1. What amounts relating to the sale and the hedge would appear on Terrace€™s SCI and SFP for the year ended December 31, 20X6?
2. Assume instead that Terrace€™s year- end was May 31. What amounts would appear on Terrace€™s financial statements at May 31, 20X6?
3. Assume that Terrace€™s year- end was May 31 and Terrace designated the hedge as a cash flow hedge. What amounts would appear on Terrace€™s financial statements at May 31,20X6?

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Canadian equivalent of US$1.00: May 12, 20x6 May 31-August 30, 20X6 October 1, 20x6 Spot rate $1.15 1.10 1.12 Forward rate $1.18 1.08 n/a