Sheridan is a Canadian company that conducts many transactions in $US. Because the price of $US fluctuates daily, Sheridan oftenenters into futures contracts as a way to manage risk.On September 1, 2023, Sheridan entered into a future contract to sell US $101,000 for CDN $1.20, which was the market value onSeptember 1. The broker with whom Sheridan arranged the contract required a 20% deposit, which Sheridan paid in cash. OnDecember 31, Sheridan's year-end, the price per $US was CDN $1.25. On January 1, Sheridan closed out the contract at the sameexchange rate, settling without delivering the cash.Prepare the journal entries to record the futures contract. (Credit account titles are automatically indented when the amount is entered. Donot indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titlesand enter O for the amounts. List all debit entries before credit entries.)

A futures contract is a type of common financial agreement in which two parties agree to buy or sell…

Answered: Sheridan is a Canadian company that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 2020, Oriole Inc. entered into a futures contract to purchase U.S. $5,390 for $5,670 Canadian in 30 days on the Futures Exchange. On January 15, the fair value of the contract was $39 (reflecting the present value of the future cash flows under the contract). Oriole Inc. was required to deposit $22 with the stockbroker as a margin. Prepare the journal entries to update the books on January 1 and 15. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,110,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,110,000 pesos in three months at a strike price of $0.076. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date June 1 June 30 September 1 Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the impact on net income over the two accounting periods? b-1. Assuming that Maxwell designates the foreign currency option as a fair value…
Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with payment of 16,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on December 1, 2020, to sell 16,000 dinars on March 1, 2021. The forward points on the forward contract are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows: Date Spot Rate Forward Rate(to March 1, 2021) December 1, 2020 $ 3.40 $ 3.475 December 31, 2020 3.50 3.600 March 1, 2021 3.65 N/A Icebreaker must close its books and prepare financial statements at December 31. a-1. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars. a-2. What is the impact on…
M3
On January 1, 2021, LLB Industries borrowed $370,000 from Trust Bank by issuing a two-year, 8% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. The agreement called for the company to receive payment based on a 8% fixed interest rate on a notional amount of $370,000 and to pay interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly. Floating (LIBOR) settlement rates were 8% at January 1, 6% at March 31, and 4% June 30, 2021. The fair values of the swap are quotes obtained from a derivatives dealer. Those quotes and the fair values of the note are as indicated below. Fair value of interest rate swap Fair value of note payable Required: 1. Calculate the net cash settlement at March 31 and…
Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 106,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 106,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.35 per pound and costs $1,060. The spot rate for pounds is $1.35 on June 20 and $1.40 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30? Multiple Choice $530. $5,300. $2,300. $1,060.
Ignore Sammy. Another derivatives trader, John, took a long position in IRU9 on 04/07/2019 and held it until maturity. When the IRU9 matured in mid-September 2019, John closed his derivative long position and bought the 90-day Bank Bill at the 1% spot rate. What net rate of interest did he earn on his investment? 0.80% 1.00% 2.08% 1.08%
A U.S. firm has a £100,000 payable with a 3-month maturity. To hedge the payable, it will take a short position in a forward contract True or False?
On January 1, 2021, Labtech Circuits borrowed $300,000 from First Bank by issuing a three-year, 6% note, payable on December 31, 2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 8% fixed interest rate on a notional amount of $300,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year. Floating (LIBOR) settlement rates were 8% at inception and 9%, 7%, and 7% at the end of 2021, 2022, and 2023, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows: January 1 December 31 2021 2021 2022 2023…
Sysco corporation has purchased currency call options to hedge a 4,320,000 Swedish krona payable. The premium is $0.015 (per unit of Swedish krona) and the exercise price of the option is $0.097 per Swedish krona. If the spot rate at the time of maturity is S0.105 per Swedish krona, what is the total amount paid by the corporation if it acts rationally (after accounting for the premium paid)? Question 27 options: S 419,040. $354,240. $518,400. S453,600. $483,840.
On February 1, 2017, Linber Company forecasted the purchase of component parts on May 1,2017, at a price of 100,000 euros. On that date, Linber entered into a forward contract to purchase 100,000 euros on May 1.2017. It designated the forward contract as a cash flow hedge of the forecasted transaction. The spot rate for euros on February 1, 2017, was $1 per euro. On May 1, 2017, the forward contract was settled, and the component parts were received and paid for. The parts were consumed in the second quarter of 2017. Linber's financial statements reported the following amounts related to this cash flow hedge (credit balances in parentheses):Required 1. On February 1, 2017, what was the U.S. dollar per euro forward rate to May 1, 2017?2. On March 31, 2017, what was the U.S. dollar per euro forward rate to May 1.2017?3. Was Linber better off or worse off as a result of having entered into this cash flow hedge of a forecasted transaction? By what amount? 4. What does the total premium…

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