Compucat is a Canadian manufacturing company that produces inexpensive personal and laptop computers. The company has been generating progressively more of its sales from foreign markets. During 2019, the company started purchasing most of its components from a supplier in Germany. To deal with the uncertainty associated with foreign exchange fluctuations, all of Compucat's foreign currency denominated receivables and payables are hedged with contracts with the company's bank. Compucat's year-end is on December 31. The following transactions took place in 2019: On September 1, 2019, Compucat purchased components from its German supplier for 100,000 Euros. On that date AMC entered into a forward contract for 100,000 Euros at the 60 day forward rate of 1 Euro CDN$1.50. The forward contract was designated as a fair value hedge of the amount payable to the German supplier. Compucat settled with the bank and paid its supplier in full on December 1, 2019. On December 1, 2019 Compucat also shipped a batch of laptop computers to an American client for US$250,000. The invoice required that Compucat receive its payment in full by January 31, 2019. On the date of the sale, the company entered into a forward contract for US$250,000 at the two-month forward rate of US$1 = CDN$1.25. This forward contract was designated to be a fair value hedge of the amount due from the American customer. The dates and exchange rates relevant to these transactions are shown below. The dates and exchange rates relevant to these transactions are shown below. Spot rate Forward rate CDN$1.5000 September 1, 2019: December 1, 2019: December 31, 2019: 1 Euro-CDN$1.4875 1 Euro CDN$1.4800 US$1 CDN$1.2600 US$1 CDN$1.2700 1 Euro 1 Euro CDN$1.4800 US$1 CDN$1.2500 US$1 CDN$1.2600 Prepare the 2019 journal entries to record the above transactions assuming Compucat uses the gross method. In addition, prepare any adjusting journal entries that you deem necessary.
Compucat is a Canadian manufacturing company that produces inexpensive personal and laptop computers. The company has been generating progressively more of its sales from foreign markets. During 2019, the company started purchasing most of its components from a supplier in Germany. To deal with the uncertainty associated with foreign exchange fluctuations, all of Compucat's foreign currency denominated receivables and payables are hedged with contracts with the company's bank. Compucat's year-end is on December 31. The following transactions took place in 2019: On September 1, 2019, Compucat purchased components from its German supplier for 100,000 Euros. On that date AMC entered into a forward contract for 100,000 Euros at the 60 day forward rate of 1 Euro CDN$1.50. The forward contract was designated as a fair value hedge of the amount payable to the German supplier. Compucat settled with the bank and paid its supplier in full on December 1, 2019. On December 1, 2019 Compucat also shipped a batch of laptop computers to an American client for US$250,000. The invoice required that Compucat receive its payment in full by January 31, 2019. On the date of the sale, the company entered into a forward contract for US$250,000 at the two-month forward rate of US$1 = CDN$1.25. This forward contract was designated to be a fair value hedge of the amount due from the American customer. The dates and exchange rates relevant to these transactions are shown below. The dates and exchange rates relevant to these transactions are shown below. Spot rate Forward rate CDN$1.5000 September 1, 2019: December 1, 2019: December 31, 2019: 1 Euro-CDN$1.4875 1 Euro CDN$1.4800 US$1 CDN$1.2600 US$1 CDN$1.2700 1 Euro 1 Euro CDN$1.4800 US$1 CDN$1.2500 US$1 CDN$1.2600 Prepare the 2019 journal entries to record the above transactions assuming Compucat uses the gross method. In addition, prepare any adjusting journal entries that you deem necessary.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter27: Multinational Financial Management
Section: Chapter Questions
Problem 8Q
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Transcribed Image Text:Compucat is a Canadian manufacturing company that produces inexpensive personal and laptop computers. The company has
been generating progressively more of its sales from foreign markets. During 2019, the company started purchasing most of its
components from a supplier in Germany.
To deal with the uncertainty associated with foreign exchange fluctuations, all of Compucat's foreign currency denominated
receivables and payables are hedged with contracts with the company's bank. Compucat's year-end is on December 31. The
following transactions took place in 2019:
On September 1, 2019, Compucat purchased components from its German supplier for 100,000 Euros. On that date AMC entered
into a forward contract for 100,000 Euros at the 60 day forward rate of 1 Euro CDN$1.50. The forward contract was designated as
a fair value hedge of the amount payable to the German supplier. Compucat settled with the bank and paid its supplier in full on
December 1, 2019.
On December 1, 2019 Compucat also shipped a batch of laptop computers to an American client for US$250,000. The invoice
required that Compucat receive its payment in full by January 31, 2019. On the date of the sale, the company entered into a forward
contract for US$250,000 at the two-month forward rate of US$1 = CDN$1.25. This forward contract was designated to be a fair
value hedge of the amount due from the American customer.
The dates and exchange rates relevant to these transactions are shown below.
The dates and exchange rates relevant to these transactions are shown below.
Spot rate
Forward rate
CDN$1.5000
September 1, 2019:
December 1, 2019:
December 31, 2019:
1 Euro-CDN$1.4875
1 Euro CDN$1.4800
US$1 CDN$1.2600
US$1 CDN$1.2700
1 Euro
1 Euro CDN$1.4800
US$1 CDN$1.2500
US$1 CDN$1.2600
Prepare the 2019 journal entries to record the above transactions assuming Compucat uses the gross method. In addition, prepare
any adjusting journal entries that you deem necessary.
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