On October 15, 2020, Buy Co., a Canadian company, entered into a contract to purchase goods from Sell Ltd., a foreign corporation. The contract terms called for the goods to be delivered to Buy Co.'s Calgary location on June 30, 2021. The cost of goods is USD $600,000 to be settled on July 31, 2021. On October 15, 2020, Buy Co. also arranged for a forward contract through its bank for USD $600,000. The goods were delivered on time, and Buy Co. settled with Sell Ltd. on July 31, 2021. Buy Co. has a May 31 year-end. The spot and forward rates are as follows: Spot Rate ($CAD): 1 USD = x.xx CAD Forward Rate ($CAD): 1 USD = x.xx CAD October 15, $1.42 $1.46 2020 May 31, 2021 $1.44 $1.48 June 30, $1.45 $1.49 2021 July 31, 2021 $1.50 $1.50 Required Prepare Buy Co.'s journal entries to reflect the above assuming that: a. the hedge is a cash flow hedge, and b. the hedge is a fair value hedge.
On October 15, 2020, Buy Co., a Canadian company, entered into a contract to purchase goods from Sell Ltd., a foreign corporation. The contract terms called for the goods to be delivered to Buy Co.'s Calgary location on June 30, 2021. The cost of goods is USD $600,000 to be settled on July 31, 2021. On October 15, 2020, Buy Co. also arranged for a forward contract through its bank for USD $600,000. The goods were delivered on time, and Buy Co. settled with Sell Ltd. on July 31, 2021. Buy Co. has a May 31 year-end. The spot and forward rates are as follows: Spot Rate ($CAD): 1 USD = x.xx CAD Forward Rate ($CAD): 1 USD = x.xx CAD October 15, $1.42 $1.46 2020 May 31, 2021 $1.44 $1.48 June 30, $1.45 $1.49 2021 July 31, 2021 $1.50 $1.50 Required Prepare Buy Co.'s journal entries to reflect the above assuming that: a. the hedge is a cash flow hedge, and b. the hedge is a fair value hedge.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:On October 15, 2020, Buy Co., a Canadian company, entered into a contract to purchase goods
from Sell Ltd., a foreign corporation. The contract terms called for the goods to be delivered
to Buy Co.'s Calgary location on June 30, 2021. The cost of goods is USD $600,000 to be settled on
July 31, 2021.
On October 15, 2020, Buy Co. also arranged for a forward contract through its bank for USD
$600,000. The goods were delivered on time, and Buy Co. settled with Sell Ltd. on July 31, 2021.
Buy Co. has a May 31 year-end.
The spot and forward rates are as follows:
Spot Rate ($CAD): 1
USD = x.xx CAD
Forward Rate ($CAD): 1
USD = x.xx CAD
October 15,
$1.42
$1.46
2020
May 31, 2021
$1.44
$1.48
June 30,
$1.45
$1.49
2021
July 31, 2021
$1.50
$1.50
Required
Prepare Buy Co.'s journal entries to reflect the above assuming that:
a. the hedge is a cash flow hedge, and
b. the hedge is a fair value hedge.
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