Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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3)
Merit & Family purchased engines from Canada for 40,000 Canadian dollars on March 10 with payment due on June 8. Also, on March 10, Merit acquired a 90-day forward contract to purchase 40,000 Canadian dollars at C$1 = $0.50. The forward contract was acquired to manage Merit & Family’s exposed net liability position in Canadian dollars, but it was not designated as a hedge. The spot rates were
| March 10 | C$1 = $0.49 |
|---|---|
| June 8 | C$1 = $0.52 |
Required:
Prepare journal entries for Merit & Family to record the purchase of the engines, entries associated with the forward contract, and entries for the payment of the foreign currency payable.
Note: If no entry is required for a transaction/event, select "No
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1Record the foreign purchase of the engines.
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2Record the entry for the 90-day forward exchange contract signed to receive Canadian dollars.
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3Record the entry to revalue the foreign currency receivable to the current equivalent U.S. dollar value.
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4Record the entry to revalue the foreign currency accounts payable to the current U.S. dollar value.
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5Record the payment of U.S. dollars to an exchange broker for the forward contract.
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6Record the receipt of Canadian dollars from the exchange broker.
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7Record the settlement of the foreign currency payable.
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