Lamont Company is a Canadian company that produces electronic switches for the telecommunications Industry. Lamont regularly Imports component parts from Sousa Ltd., a supplier located in Mexico, and makes payments in Mexican pesos (MXN/Mex). Based on past experience, Lamont Company expects to purchase raw materials from Sousa at a cost of Mex29,000,000 on March 1, Year 2. To hedge this forecasted transaction, Lamont enters into a four-month forward contract on October 31, Year 1 to purchase 29 million pesos on March 1, Year 2. It appropriately designates the forward contract as a cash flow hedge of the Mexican peso liability exposure. On March 1, Year 2, the forward contract is settled with the bank and Sousa is paid for delivering the goods to Lamont. The following spot and forward exchange rates exist during the period October to March: Forward Rates Mex150.154 Mexis0.155 -- Spot Rates October 31, Year 1 December 31, Year 1 Move - 15, Mexi March 1, Year 2 50.153 Mexis0.157 "For contracts expiring on March 1, Year 2 4 27
Lamont Company is a Canadian company that produces electronic switches for the telecommunications Industry. Lamont regularly Imports component parts from Sousa Ltd., a supplier located in Mexico, and makes payments in Mexican pesos (MXN/Mex). Based on past experience, Lamont Company expects to purchase raw materials from Sousa at a cost of Mex29,000,000 on March 1, Year 2. To hedge this forecasted transaction, Lamont enters into a four-month forward contract on October 31, Year 1 to purchase 29 million pesos on March 1, Year 2. It appropriately designates the forward contract as a cash flow hedge of the Mexican peso liability exposure. On March 1, Year 2, the forward contract is settled with the bank and Sousa is paid for delivering the goods to Lamont. The following spot and forward exchange rates exist during the period October to March: Forward Rates Mex150.154 Mexis0.155 -- Spot Rates October 31, Year 1 December 31, Year 1 Move - 15, Mexi March 1, Year 2 50.153 Mexis0.157 "For contracts expiring on March 1, Year 2 4 27
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lamont Company is a Canadian company that produces electronic switches for the telecommunications Industry. Lamont regularly
Imports component parts from Sousa Ltd., a supplier located in Mexico, and makes payments in Mexican pesos (MXN/Mex). Based on
past experience, Lamont Company expects to purchase raw materials from Sousa at a cost of Mex29,000,000 on March 1, Year 2. To
hedge this forecasted transaction, Lamont enters into a four-month forward contract on October 31, Year 1 to purchase 29 million
pesos on March 1, Year 2. It appropriately designates the forward contract as a cash flow hedge of the Mexican peso liability exposure.
On March 1, Year 2, the forward contract is settled with the bank and Sousa is paid for delivering the goods to Lamont.
The following spot and forward exchange rates exist during the period October to March:
October 31, Year 1
December 31, Year 1
March 3, Year 2
"For contracts expiring on March 1, Year 2
Date
October 31 Year 1
December 11, Year 1
Spot Rates
Mexi - so.151
Mex150.15)
Monds.137
4
Required:
(a) Prepare all journal entries (using net method) required to record the transactions described above. (Enter your answers in whole
dollars and not in millions. 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.)
General Journal
March 1 Year 2
here to search
Purchase
(Click to select)
Record the Forward contract
Click to select)
Click to select
Hevalue the forware contract at fast value
Click to select
Forward Rates
Mex1 se 154
Hex1 10.155
Hoạt độ
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V
Saved
14
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Transcribed Image Text:3
December 31, Year 1
March 1, Year 2
Click to select)
Click to select)
(Click to select)
pe here to search
(Click to select)
Revalue the forward contract at fair value.
(Click to select)
(Click to select)
(Click to select)
Revalue the forward contract at fair value..
(Click to select)
(Click to select)
V
V
V
V
Record the Forward contract with bank.
[(Click to select)
V
(Click to select)
Record the purchase of inventory.
Click to select)
(Click to select)
V
clear accumulated other comprehensive income (OC1).
Et
(b) Prepare a December 31, Year 1, partial trial balance of the accounts used in part (al (Leave no cells blank-be certain to enter "0"
wherever required. Enter your answers in whole dollers and not In millions. Omit S sign in your response.)
Partial trial balance - December 31 Year 3
C
✓
T
1$
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