Our firm sold equipment to a company in France for €300,000 on December 1, Year 6. Our year end is December 31, and the receivable is due on February 28, Year 7. On December 1, Year 6, we entered into a forward exchange contract with the bank to provide them with €300,000 on February 28, Year 7, in return for Canadian dollars at a forward rate of €Euro 1 = CDN $1.46. This is classified as a fair value hedge.
Our firm sold equipment to a company in France for €300,000 on December 1, Year 6. Our year end is December 31, and the receivable is due on February 28, Year 7. On December 1, Year 6, we entered into a forward exchange contract with the bank to provide them with €300,000 on February 28, Year 7, in return for Canadian dollars at a forward rate of €Euro 1 = CDN $1.46. This is classified as a fair value hedge.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Our firm sold equipment to a company in France for €300,000 on December 1, Year 6. Our year end is December 31, and the receivable is due on February 28, Year 7. On
December 1, Year 6, we entered into a forward exchange contract with the bank to provide them with €300,000 on February 28, Year 7, in return for Canadian dollars at a
forward rate of €Euro 1 = CDN $1.46. This is classified as a fair value hedge.
The following rates were in effect:
Forward Rates:
December 1, Year 6; 90 day forward rate
December 31, Year 6; 60 day forward rate
Spot rates:
December 1, Year 6
December 31, Year 6
February 28, Year 7
€1 = CDN$ 1.46
€1 = CDN$ 1.48
€1 CDNS 1.48
€1 CDN$ 1.49
€1 CDN$ 1.53
Required:
Provide all of the necessary journal entries to record both the account payable and the hedge.
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