3) Merit & Family purchased engines from Canada for 40,000 Canadian dollars on March 10 with payment due on June 8. Also, on March 10, Merit acquired a 90-day forward contract to purchase 40,000 Canadian dollars at C$1 = $0.50. The forward contract was acquired to manage Merit & Family’s exposed net liability position in Canadian dollars, but it was not designated as a hedge. The spot rates were March 10 C$1 = $0.49 June 8 C$1 = $0.52 Required: Prepare journal entries for Merit & Family to record the purchase of the engines, entries associated with the forward contract, and entries for the payment of the foreign currency payable. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. 1 Record the foreign purchase of the engines. 2 Record the entry for the 90-day forward exchange contract signed to receive Canadian dollars. 3 Record the entry to revalue the foreign currency receivable to the current equivalent U.S. dollar value. 4 Record the entry to revalue the foreign currency accounts payable to the current U.S. dollar value. 5 Record the payment of U.S. dollars to an exchange broker for the forward contract. 6 Record the receipt of Canadian dollars from the exchange broker. 7 Record the settlement of the foreign currency payable.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter9: Operating Activities

Section: Chapter Questions

Problem 22PC

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March 10	C$1 = $0.49
June 8	C$1 = $0.52

Required:

Prepare journal entries for Merit & Family to record the purchase of the engines, entries associated with the forward contract, and entries for the payment of the foreign currency payable.

Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

1

Record the foreign purchase of the engines.
2

Record the entry for the 90-day forward exchange contract signed to receive Canadian dollars.
3

Record the entry to revalue the foreign currency receivable to the current equivalent U.S. dollar value.
4

Record the entry to revalue the foreign currency accounts payable to the current U.S. dollar value.
5

Record the payment of U.S. dollars to an exchange broker for the forward contract.
6

Record the receipt of Canadian dollars from the exchange broker.
7

Record the settlement of the foreign currency payable.

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