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(a) Prepare the journal entries for the below items assuming that MEI designates the forward contract as a cash flow hedge:

(a) Prepare the journal entries for the below items assuming that MEI designates the forward contract as a cash flow hedge:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Manitoba Exporters Inc. (MEI) sells Inuit carvings to countries throughout the world. On December 1, Year 5, MEI sold 13,000 carvings to a wholesaler in a foreign country at a selling price of 650,000 foreign currency units (FCs) when the spot rate was FC1 = $0.758. The invoice required the foreign wholesaler to remit by April 1, Year 6. On December 3, Year 5, MEI entered into a forward contract with the Royal Bank at the 120-day forward rate of FC1 = $0.798 and the spot rate was still FC1 = $0.758. The fiscal year-end of MEI is December 31, and on this date the spot rate was FC1 = $0.774 and the forward rate was FC1 = $0.810. The payment from the foreign customer was received on April 1, Year 6, when the spot rate was FC1 = $0.819. Assume that MEI uses hedge accounting. Also, assume that the forward element and spot elements on the forward contract are accounted for separately. Required: (a) Prepare the journal entries for the below items assuming that MEI designates the forward contract as a cash flow hedge: (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required.) (i) The sale and the forward contract Date December 1, Year 5 December 3, Year 5 Date December 31, Year 5 Accounts receivable Sales Record the sales. No journal entry required General Journal No journal entry required Record the forward contract. (ii) any adjustments required on December 31 Exchange loss (Click to select) General Journal (Click to select) Debit Accounts receivable Exchange gain Record to adjust the accounts receivable to closing exchange rate. Debit Credit (Click to select) Record to offset exchange gain or loss on spot and forward contracts. Credit (Click to select) Record amortization gain or loss from premium on forward contract over 4 months.
Transcribed Image Text:Manitoba Exporters Inc. (MEI) sells Inuit carvings to countries throughout the world. On December 1, Year 5, MEI sold 13,000 carvings to a wholesaler in a foreign country at a selling price of 650,000 foreign currency units (FCs) when the spot rate was FC1 = $0.758. The invoice required the foreign wholesaler to remit by April 1, Year 6. On December 3, Year 5, MEI entered into a forward contract with the Royal Bank at the 120-day forward rate of FC1 = $0.798 and the spot rate was still FC1 = $0.758. The fiscal year-end of MEI is December 31, and on this date the spot rate was FC1 = $0.774 and the forward rate was FC1 = $0.810. The payment from the foreign customer was received on April 1, Year 6, when the spot rate was FC1 = $0.819. Assume that MEI uses hedge accounting. Also, assume that the forward element and spot elements on the forward contract are accounted for separately. Required: (a) Prepare the journal entries for the below items assuming that MEI designates the forward contract as a cash flow hedge: (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required.) (i) The sale and the forward contract Date December 1, Year 5 December 3, Year 5 Date December 31, Year 5 Accounts receivable Sales Record the sales. No journal entry required General Journal No journal entry required Record the forward contract. (ii) any adjustments required on December 31 Exchange loss (Click to select) General Journal (Click to select) Debit Accounts receivable Exchange gain Record to adjust the accounts receivable to closing exchange rate. Debit Credit (Click to select) Record to offset exchange gain or loss on spot and forward contracts. Credit (Click to select) Record amortization gain or loss from premium on forward contract over 4 months.
(iii) the cash received in Year 6 Date April 1, Year 6 Accounts receivable Exchange gain Record to adjust the accounts receivable to the spot rate. Exchange loss Cash General Journal Forward contract No journal entry required Record to offset exchange gain or loss on spot and forward contracts. (Click to select) ♥ (Click to select) Record the receipt of cash. (Click to select) (Click to select) ✓ ✓ (Click to select) Record amortization gain or loss from premium on forward contract over 4 months. Debit ✓ (Click to select) Record the receipts of cash from bank. Credit
Transcribed Image Text:(iii) the cash received in Year 6 Date April 1, Year 6 Accounts receivable Exchange gain Record to adjust the accounts receivable to the spot rate. Exchange loss Cash General Journal Forward contract No journal entry required Record to offset exchange gain or loss on spot and forward contracts. (Click to select) ♥ (Click to select) Record the receipt of cash. (Click to select) (Click to select) ✓ ✓ (Click to select) Record amortization gain or loss from premium on forward contract over 4 months. Debit ✓ (Click to select) Record the receipts of cash from bank. Credit
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