Manitoba Exporters Inc. (MEI) sells Inuit carvings to countries throughout the world. On December 1, Year 5, MEI sold 14,500 carvings to a wholesaler in a foreign country at a selling price of 694,000 foreign currency units (FCS) when the spot rate was FC1 $0.831. 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 = $0.871 and the spot rate was still FC1 = $0.831. The fiscal year-end of MEI is December 31, and on this date the spot rate was FC1 = $0.847 and the forward rate was FC1 $0.883. The payment from the foreign customer was received on April 1, Year 6, when the spot rate was FC1 = $0.892. Assume that MEI uses hedge accounting. Also, assume that the forward element and spot elements on the forward contract are accounted for separately. Required: Prepare the journal entries assuming that MEI designates the forward contract as a fair value 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 (ii) any adjustments required on December 31 (iii) the cash received in Year 6

SWFT Corp Partner Estates Trusts
42nd Edition
ISBN:9780357161548
Author:Raabe
Publisher:Raabe
Chapter9: Taxation Of International Transactions
Section: Chapter Questions
Problem 27P
icon
Related questions
Question

Do not use chatgpt.

Manitoba Exporters Inc. (MEI) sells Inuit carvings to countries throughout the world. On December 1, Year 5, MEI sold
14,500 carvings to a wholesaler in a foreign country at a selling price of 694,000 foreign currency units (FCS) when the
spot rate was FC1 $0.831. 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 = $0.871 and the spot rate
was still FC1 = $0.831.
The fiscal year-end of MEI is December 31, and on this date the spot rate was FC1 = $0.847 and the forward rate was FC1
$0.883. The payment from the foreign customer was received on April 1, Year 6, when the spot rate was FC1 = $0.892.
Assume that MEI uses hedge accounting. Also, assume that the forward element and spot elements on the forward
contract are accounted for separately.
Required:
Prepare the journal entries assuming that MEI designates the forward contract as a fair value 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
(ii) any adjustments required on December 31
(iii) the cash received in Year 6
Transcribed Image Text:Manitoba Exporters Inc. (MEI) sells Inuit carvings to countries throughout the world. On December 1, Year 5, MEI sold 14,500 carvings to a wholesaler in a foreign country at a selling price of 694,000 foreign currency units (FCS) when the spot rate was FC1 $0.831. 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 = $0.871 and the spot rate was still FC1 = $0.831. The fiscal year-end of MEI is December 31, and on this date the spot rate was FC1 = $0.847 and the forward rate was FC1 $0.883. The payment from the foreign customer was received on April 1, Year 6, when the spot rate was FC1 = $0.892. Assume that MEI uses hedge accounting. Also, assume that the forward element and spot elements on the forward contract are accounted for separately. Required: Prepare the journal entries assuming that MEI designates the forward contract as a fair value 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 (ii) any adjustments required on December 31 (iii) the cash received in Year 6
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
SWFT Corp Partner Estates Trusts
SWFT Corp Partner Estates Trusts
Accounting
ISBN:
9780357161548
Author:
Raabe
Publisher:
Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT