Deck 10: Foreign Currency Transactions

Question 1

What is the total amount of CMI's foreign exchange gain or loss on this transaction?

A) CDN$360 loss.
B) CDN$120 gain.
C) CDN$360 gain.
D)CDN$480 gain.

Answer 1

D

Question 2

What is the amount of interest paid (in Canadian Dollars) during 2016?

A) $250,000.
B) $287,250.
C) $287,325.
D)$372,500.

Answer 2

B

Question 3

What would be the amount of the foreign exchange gain or loss recorded at the settlement date?

A) A CDN$15 exchange loss.
B) A CDN$10 exchange loss.
C) A CDN$5 exchange gain.
D)A CDN$10 exchange gain.

Answer 3

C

Question 4

Some gains and losses arising on a revaluation of property plant and equipment are to be included in other comprehensive income. When the asset is measured in a foreign currency, how would exchange differences be treated?

A) As an item to be included in income or loss for the year.
B) As a reduction or increase in the carry cost of the asset.
C) As a contra account to be fully disclosed and to show the impact of foreign exchange differences.
D)The differences should be included in the calculation of other comprehensive income.

Question 5

What was the cost to CDN of the amount paid to RNB on the settlement date?

A) CDN$805.
B) CDN$810.
C) CDN$820.
D)US$820.

Question 6

Which of the following statements is correct?

A) The historical rate is the exchange rate on the date of the transaction and the closing rate is the exchange rate at the end of the reporting period.
B) The historical rate is the exchange rate on the date of the transaction and the closing rate is the rate on which any hedge transactions mature.
C) The spot rate is the rate on the date of the transaction and the relevant forward rate is the exchange rate used at the end of the reporting period.
D)None of the above are correct.

Question 7

At the balance sheet date, monetary items denominated in a foreign currency should be adjusted to reflect the exchange rate in effect at the:

A) time of settlement of the contract.
B) time the sale was recorded.
C) balance sheet date.
D)time of payment.

Question 8

What would be the amount of the foreign exchange gain or loss recorded at the balance sheet date?

A) A CDN$15 exchange loss.
B) A CDN$10 exchange loss.
C) A CDN$10 exchange gain.
D)Nil.

Question 9

The rate charged by commercial banks for the purchase of any foreign currency (in Canadian dollars) on any given day would be based on which of the following?

A) The average rate.
B) The closing rate.
C) The spot rate.
D)The forward rate.

Question 10

Which of the following statements accurately describes the manner in which transactions must be translated under IAS 21 The Effects of Changes in Foreign Exchange Rates?

A) All individual transactions must be translated into the functional currency of the reporting entity.
B) All individual transactions must be converted into the local currency of the reporting entity.
C) All individual transactions are to be reported into the currency of the jurisdiction where the majority of shareholders reside.
D)All individual transactions may be reported into the currency of the country where the corporation does the majority of its business.

Question 11

At what amount would CDN record its inventory purchase from RNB at the time of purchase?

A) CDN$805.
B) CDN$810.
C) CDN$820.
D)US$820.

Question 12

At what amount (in Canadian Dollars) would XYZ record its initial Loan Liability on January 1, 2016?

A) $5,471,500.
B) $5,476,500.
C) $5,747,500.
D)$5,750,000.

Question 13

At what amount would CDN record its liability to RNB at the time of purchase?

A) CDN$805.
B) CDN$810.
C) CDN$820.
D)US$820.

Question 14

Which of the following statements is correct?

A) In Canada, the cost of a unit of foreign currency in Canadian dollars is a direct quotation, while the cost in that foreign currency of purchasing one Canadian dollar is referred to as an indirect quotation.
B) In Canada, the cost of a unit of foreign currency in Canadian dollars is an indirect quotation, while the cost in that foreign currency of purchasing one Canadian dollar is referred to as a direct quotation.
C) In Canada, the cost of a unit of foreign currency in Canadian dollars is a direct quotation, and the cost in that foreign currency of purchasing one Canadian dollar is also referred to as a direct quotation.
D)In Canada, the cost of a unit of foreign currency in Canadian dollars is an indirect quotation, while the cost in that foreign currency of purchasing one Canadian dollar is also referred to as an indirect quotation.

Question 15

What is the amount of CMI's foreign exchange gain or loss on February 28^th?

A) CDN$360 loss.
B) CDN$120 gain.
C) CDN$360 gain.
D)CDN$480 gain.

Question 16

What is the amount of interest expense (in Canadian Dollars) recorded for 2016?

A) $250,000.
B) $287,250.
C) $287,325.
D)$372,500.

Question 17

What is the amount of CMI's foreign exchange gain or loss at year-end?

A) CDN$120 loss.
B) CDN$480 gain.
C) CDN$120 gain.
D)Nil.

Question 18

What is the amount of cash (in Canadian funds) received by CMI on the settlement date?

A) CDN$136,920.
B) CDN$137,040.
C) CDN$137,400.
D)CDN$137,880.

Question 19

At what value would CMI record the initial sale to its American distributor?

A) CDN$105,171
B) US$120,000
C) CDN$120,000.
D)CDN$136,920.

Question 20

Which of the following is NOT currently a cause of fluctuation in foreign exchange rates?

A) Inflation rates.
B) The pegging of a currency to the American (U.S.) dollar.
C) Interest rates.
D)Trade surpluses and deficits.

Question 21

What is the amount of the exchange gain or loss from the recognition of the hedge discount recognized during 2017?

A) A loss of CDN$4,500.
B) A loss of CDN$3,000.
C) A gain of $ CDN4,500.
D)Nil.

Question 22

What is the amount of interest expense (in Canadian Dollars) recorded for 2017?

A) $249,920.
B) $250,080.
C) $287,175.
D)$287,250.

Question 23

What is the amount of interest paid (in Canadian Dollars) during 2017?

A) $250,000.
B) $287,125.
C) $287,330.
D)$372,500.

Question 24

What is the journal entry required to record the ordering of North's merchandise?

A) No entry is required.
B)
$\begin{array}{|l|l|l|}\hline & \text { Debit } & \text { Credit } \\\hline \text { Merchandise Inventory } & \text { CDN } \$ 686,700 & \\\hline \text { Accounts Pay able } & & \text { CDN } \$ 686,700 \\\hline\end{array}$
C)
$\begin{array}{|l|l|l|}\hline & \text { Debit } & \text { Credit } \\\hline \text { Merchandise Inventory } & \text { CDN } \$ 697,500 & \\\hline \text { Accounts Pay able } & & \text { CDN } \$ 697,500 \\\hline\end{array}$

Question 25

What is the amount of RXN's foreign exchange gain or loss prior to its hedge?

A) A CDN$6,000 loss.
B) A CDN$6,000 gain.
C) A CDN$4,500 gain.
D)Nil.

Question 26

By what amount (in Canadian Dollars) would XYZ have to adjust its Loan Liability on December 31, 2016 as a result of the year's foreign exchange rate fluctuations?

A) A $5,000 decrease.
B) A $2,500 decrease
C) A $5,000 increase.
D)Nil.

Question 27

What is the amount of the forward contract in Canadian dollars?

A) $686,700.
B) $697,500.
C) $701,400.
D)$703,500.

Question 28

Atwhat amount (in Canadian Dollars) would RXN's sale be recorded initially?

A) $343,500.
B) $348,000.
C) $349,500.
D)$350,400.

Question 29

What is the amount of North's recognized exchange gain or loss arising from this transaction included in its financial statements as at October 31, 2017?

A) CDN$3,900 loss.
B) CDN$3,900 gain .
C) CDN$3,000 gain.
D)Nil.

Question 30

What amount will be recorded as the value of the forward contract on the commitment date if the forward contract is recorded using the net method?

A) A liability of CDN$6,000.
B) An asset of CDN$10,800.
C) An asset of CDN$6,000.
D)Nil.

Question 31

How much (in Canadian Dollars) will RXN expect to receive from the bank when its forward contract is settled?

A) $337,500.
B) $343,500.
C) $347,500.
D)$349,500.

Question 32

At what amount would North record its inventory when received from its supplier, if the exchange gain or loss is adjusted to the value of the inventory on the transaction date?

A) CDN$686,700.
B) CDN$693,000.
C) CDN$694,500.
D)CDN$696,000.

Question 33

Which of the following would NOT be considered a foreign exchange hedge?

A) The placement of large amounts of Canadian funds with a bank in Zurich, Switzerland.
B) A foreign currency futures contract.
C) A foreign currency option contract.
D)A forward exchange contract.

Question 34

What is the amount of the discount on the forward contract?

A) CDN$1,000.
B) CDN$1,500.
C) CDN$3,000.
D)CDN$6,000.

Question 35

Atwhat amount (in Canadian Dollars) would the forward contract with the bank be recorded, if recorded gross?

A) $337,500.
B) $343,500.
C) $347,500.
D)$349,500.

Question 36

What is the amount of the liability to the bank recorded on the commitment date if the forward contract is recorded using the gross method?

A) CDN$686,700.
B) CDN$697,500.
C) CDN$701,400.
D)CDN$703,500.

Question 37

By what amount (in Canadian Dollars) would XYZ have to adjust its Loan Liability on December 31, 2017 as a result of the year's foreign exchange rate fluctuations?

A) $3,500 decrease.
B) $2,500 decrease.
C) $2,500 increase.
D)Nil.

Question 38

Assuming that the accounts receivable balance was not adjusted on December 1, 2017, what adjustment (if any) would be required to RXN's year-end accounts receivable balance?

A) A CDN$3,000 decrease.
B) A CDN$1,500 decrease.
C) A CDN$3,000 increase.
D)No adjustment is requireD.US$300,000 x [1.165 - 1.16] = CDN$1,500 exchange loss.(loss since the Accounts Receivable asset has decreased)Foreign exchange gain/loss is change in value of monetary items, i.e., the Accounts Receivable to the customer:> carrying amount on B/S on November 1, 2017: US$300,000 x 1.165 = CDN$349,500.> carrying amount on B/S on December 31, 2017: US$300,000 x 1.16 = CDN$348,000.Thus, asset decreased by CDN$1,500, resulting in a CDN$1,500 foreign exchange loss presented on the income statement in net income.

Question 39

What is the amount of foreign exchange gain or loss recognized on the 2017 Income Statement as a result of revaluing the loan payable?

A) $2,500 loss.
B) $800 loss.
C) $800 gain.
D)$2,500 gain.

Question 40

What is the amount of the foreign exchange gain or loss recognized on the 2016 Income Statement as a result of revaluing the loan payable?

A) A CDN$10,000 loss.
B) A CDN$5,000 loss.
C) A CDN$5,000 gain.
D)A CDN$10,000 gain.

Question 41

Prairie Dog Inc. borrowed US$10,000,000 on January 1, 2014 at an annual rate of 8%. The loan is due December 31, 2017 and interest is payable annually each December 31. The exchange rates on selected dates throughout the life of the loan are shown below: $$\begin{array} { | l | l | } \hline \text { January } 1,2014 & \text { CDN } \$ 1.4416 \\\hline \text { December } 31,2014 & \text { CDN } \$ 1.4325 \\\hline \text { December } 31,2015 & \text { CDN } \$ 1.4675 \\\hline \text { December } 31,2016 & \text { CDN } \$ 1.4436 \\\hline \text { December } 31,2017 & \text { CDN } \$ 1.4625 \\\hline\end{array}$$ Assume that the average annual exchange rate was equal to the December 31^st spot rates.

-Prepare the journal entries for 2014.

Question 42

What is the required adjustment to the carrying value of the forward contract at the company's year-end?

A) CDN$300 decrease.
B) CDN$375 increase.
C) CDN$300 increase.
D)Nil.

Question 43

On January 1, 2014, GRL Inc. purchased, in U.S. Funds $500,000 of Bonds of the OBY Company. On that date, the Bonds were trading at par. These Bonds pay 10% interest annually each December 31. The Bonds mature on December 31, 2016. The following exchange rates were applicable between 2014 and 2016. The rates indicate the cost (in Canadian dollars) of purchasing 1 U.S. dollar:
$$\begin{array} { | l | l | } \hline \text { January } 1,2014 & \text { CDN } \$ 1.4666 \\\hline \text { Average rate for } 2014 & \text { CDN } \$ 1.4570 \\\hline \text { December } 31,2014 & \text { CDN } \$ 1.4726 \\\hline \text { Auerage rate for } 2015 & \text { CDN } \$ 1.4600 \\\hline \text { December } 31,2015 & \text { CDN } \$ 1.4426 \\\hline \text { Average rate for } 2016 & \text { CDN } \$ 1.4500 \\\hline \text { December } 31,2016 & \text { CDN } \$ 1.4575 \\\hline\end{array}$$

-Compute the carrying value of the investment at the end of each year:

Question 44

In which of the following situations is a gain or loss recorded on a commitment assets or liability which would not otherwise be recorded?

A) A speculative forward contract.
B) A fair value hedge of a firm commitment.
C) A fair value hedge of a recognized monetary item.
D)A cash flow hedge of a forecasted transaction.

Question 45

Prepare the December 31, 2016 Balance Sheet Presentation of the Receivable from the American client and the accounts associated with the hedge.

Question 46

Which of the following provides the best hedge against exchange variations in the value of a stream of income in a foreign currency where the payments are expected to occur in equal amounts over a period of five years?

A) Borrowing in the foreign currency with repayment due at the end of the five years.
B) Borrowing in Canadian dollars with repayment due at the end of the five years.
C) Borrowing in the foreign currency with annual repayments equal to the expected annual revenue cash flows.
D)Borrowing in Canadian dollars with annual repayments equal to the expected annual revenue cash flows.

Question 47

On July 1, 2016, Great White North (GWN) Inc. purchased merchandise from a supplier in the U.S. for US$800,000 with terms requiring full payment by October 31, 2016. On July 2, GWN entered into a forward contract to purchase US$800,000 on October 31, 2016 at a rate of CDN$1.2275. The forward contract was designated as a hedge of the fair value of the amount due to the supplier.
On October 31, GWN paid its supplier in full. Selected dates and spot rates are shown below: GWN has a July 31^st year end. On that date the forward rate for US dollars for three months was CDN $1.2225.
Prepare any and all journal entries you deem necessary to record the above transaction.

Question 48

Which of the following statements is NOT correct?

A) In a fair value hedge, the entity uses a hedging instrument to hedge against the fluctuation in the fair value of the hedged item. This method will be used when the hedged item will be valued at fair value.
B) In a cash flow hedge, the entity uses a hedging instrument to hedge against the fluctuation in the Canadian dollar value of future cash flows.
C) The gain or loss on the hedging instrument in a cash flow hedge is initially reported in other comprehensive income and reclassified to profit and loss when the hedged item affects profit.
D)The gain or loss on the hedging instrument in a fair value hedge is initially recognized in other comprehensive income and transferred to profit and loss when the hedged item has be revalued for accounting purposes in accordance with IFRS.

Question 49

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 the company shipped some lumber to a client in Japan. The selling price was established at 500,000 Yen with payment to be received on March 1, 2017.
On December 3, 2016 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer.
Canada Corp received the payment from its Japanese client on March 1, 2017. Canada Corp's year end is on December 31.
Selected spot rates were as follows: $$\begin{array} { | l | l | } \hline \text { December 1, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 3, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 31, 2016:} & 1 \text { Yen } = \text { CDN } \$ 1.1626 \\\hline \text { March 1, 2017: } & 1 \text { Yen } = \text { CDN } \$ 1.1750 \\\hline\end{array}$$ The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800.

-Prepare any and all journal entries arising from this transaction.

Question 50

Prepare the 2016 journal entries to record the above transactions. In addition, prepare any adjusting journal entries that you deem necessary.

Question 51

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 the company shipped some lumber to a client in Japan. The selling price was established at 500,000 Yen with payment to be received on March 1, 2017.
On December 3, 2016 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer.
Canada Corp received the payment from its Japanese client on March 1, 2017. Canada Corp's year end is on December 31.
Selected spot rates were as follows: $$\begin{array} { | l | l | } \hline \text { December 1, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 3, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 31, 2016:} & 1 \text { Yen } = \text { CDN } \$ 1.1626 \\\hline \text { March 1, 2017: } & 1 \text { Yen } = \text { CDN } \$ 1.1750 \\\hline\end{array}$$ The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800.

-Prepare the journal entries to record the receipt of the 500,000 Yen on March 1, 2017, assuming that Canada Corp did not enter into a hedge transaction in December 2016.

Question 52

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 the company shipped some lumber to a client in Japan. The selling price was established at 500,000 Yen with payment to be received on March 1, 2017.
On December 3, 2016 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer.
Canada Corp received the payment from its Japanese client on March 1, 2017. Canada Corp's year end is on December 31.
Selected spot rates were as follows: $$\begin{array} { | l | l | } \hline \text { December 1, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 3, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 31, 2016:} & 1 \text { Yen } = \text { CDN } \$ 1.1626 \\\hline \text { March 1, 2017: } & 1 \text { Yen } = \text { CDN } \$ 1.1750 \\\hline\end{array}$$ The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800.

-Prepare a partial Balance Sheet for Canada Corp on December 31, 2016 showing the account receivable from the Japanese client as well as the accounts associated with the hedge.

Question 53

On January 1, 2014, GRL Inc. purchased, in U.S. Funds $500,000 of Bonds of the OBY Company. On that date, the Bonds were trading at par. These Bonds pay 10% interest annually each December 31. The Bonds mature on December 31, 2016. The following exchange rates were applicable between 2014 and 2016. The rates indicate the cost (in Canadian dollars) of purchasing 1 U.S. dollar:
$$\begin{array} { | l | l | } \hline \text { January } 1,2014 & \text { CDN } \$ 1.4666 \\\hline \text { Average rate for } 2014 & \text { CDN } \$ 1.4570 \\\hline \text { December } 31,2014 & \text { CDN } \$ 1.4726 \\\hline \text { Auerage rate for } 2015 & \text { CDN } \$ 1.4600 \\\hline \text { December } 31,2015 & \text { CDN } \$ 1.4426 \\\hline \text { Average rate for } 2016 & \text { CDN } \$ 1.4500 \\\hline \text { December } 31,2016 & \text { CDN } \$ 1.4575 \\\hline\end{array}$$

-Prepare GRL's journal entries for each of 2014, 2015 and 2016.

Question 54

IAS 39 Financial Instruments: Recognition and Measurement on speculative forward exchange contracts requires that the contract be:

A) revalued using spot rates throughout its life with any gains or losses to be deferred and amortized as they occur.
B) revalued at fair value throughout its life with any gains or losses to be deferred and amortized as they occur.
C) valued using spot rates throughout its life with any gains or losses to be taken into income as they occur.
D)revalued at fair value throughout its life with any gains or losses to be taken into income as they occur.

Question 55

What is the amount of the forward contract in Canadian dollars?

A) $70,500.
B) $70,950.
C) $71,850.
D)$72,000.

Question 56

What is the amount of the premium on this contract?

A) CDN$1,500.
B) $450.
C) $900.
D)Nil.

Question 57

What amount (in Canadian dollars) did North pay to its American supplier for the purchase of the inventory?

A) $686,700.
B) $694,500.
C) $697,500.
D)$703,500.

Question 58

What is the required adjustment to ABC's accounts receivable at year-end as a result of this transaction?

A) CDN$450 decrease.
B) CDN$900 increase.
C) CDN$450 increase.
D)Nil.

Question 59

What amount (in Canadian dollars) should ABC expect to receive from its bank on May 1, 2016?

A) $70,500.
B) $70,950.
C) $71,850.
D)$72,000.

Question 60

Prairie Dog Inc. borrowed US$10,000,000 on January 1, 2014 at an annual rate of 8%. The loan is due December 31, 2017 and interest is payable annually each December 31. The exchange rates on selected dates throughout the life of the loan are shown below: $$\begin{array} { | l | l | } \hline \text { January } 1,2014 & \text { CDN } \$ 1.4416 \\\hline \text { December } 31,2014 & \text { CDN } \$ 1.4325 \\\hline \text { December } 31,2015 & \text { CDN } \$ 1.4675 \\\hline \text { December } 31,2016 & \text { CDN } \$ 1.4436 \\\hline \text { December } 31,2017 & \text { CDN } \$ 1.4625 \\\hline\end{array}$$ Assume that the average annual exchange rate was equal to the December 31^st spot rates.

-Calculate the exchange gains or losses that would be reported in the net income of the company for each year over the life of the loan.

Question 61

On July 1, 2016, Great White North (GWN) Inc. purchased merchandise from a supplier in the U.S. for US$800,000 with terms requiring full payment by October 31, 2016. On July 2, GWN entered into a forward contract to purchase US$800,000 on October 31, 2016 at a rate of CDN$1.2275. The forward contract was designated as a hedge of the fair value of the amount due to the supplier.
On October 31, GWN paid its supplier in full. Selected dates and spot rates are shown below: $$\begin{array} { | l | l | } \hline \text { July } 1,2016 & \text { CDN } \$ 1.2150 \\\hline \text { July } 31,2016 & \text { CDN } \$ 1.2175 \\\hline \text { October } 31,2016 & \text { CDN } \$ 1.22 \\\hline\end{array}$$ GWN has a July 31^st year end. On that date the forward rate for US dollars for three months was CDN $1.2225.

-Prepare a July 31, 2016 Partial Trial Balance, indicating how each account balance would appear on the company's financial statements.

Question 62

On July 1, 2016, Great White North (GWN) Inc. purchased merchandise from a supplier in the U.S. for US$800,000 with terms requiring full payment by October 31, 2016. On July 2, GWN entered into a forward contract to purchase US$800,000 on October 31, 2016 at a rate of CDN$1.2275. The forward contract was designated as a hedge of the fair value of the amount due to the supplier.
On October 31, GWN paid its supplier in full. Selected dates and spot rates are shown below: GWN has a July 31^st year end. On that date the forward rate for US dollars for three months was CDN $1.2225.
Prepare the journal entries assuming that no forward contract was entered into.

Question 63

Maplehauff Inc. sells lumber to a number of clients around the world. On December 1, 2015 the company shipped some lumber to a client in the U.S. The selling price was established at US$600,000 with payment to be received on March 1, 2016. On December 3, 2015 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of US$1 = CDN$1.275. The forward contract was designated as a fair value hedge of the amount due from the American customer.
Maplehauff Inc. received the payment from its American client on March 1, 2016. The company's year-end is on December 31. The two-month forward rate for US dollars was CDN$1.255 on that date.
Selected spot rates were as follows:
$$\begin{array} { | l | l | } \hline \text { December 1, 2015: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2356 \\\hline \text { December } 3,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2365 \\\hline \text { December } 31,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2456 \\\hline \text { March 1, 2016: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2480 \\\hline\end{array}$$

-Prepare a partial Balance Sheet for Maplehauff Inc. on December 31, 2015 showing the Account Receivable from the American client as well as the accounts associated with the hedge.

Question 64

Maplehauff Inc. sells lumber to a number of clients around the world. On December 1, 2015 the company shipped some lumber to a client in the U.S. The selling price was established at US$600,000 with payment to be received on March 1, 2016. On December 3, 2015 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of US$1 = CDN$1.275. The forward contract was designated as a fair value hedge of the amount due from the American customer.
Maplehauff Inc. received the payment from its American client on March 1, 2016. The company's year-end is on December 31. The two-month forward rate for US dollars was CDN$1.255 on that date.
Selected spot rates were as follows:
$$\begin{array} { | l | l | } \hline \text { December 1, 2015: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2356 \\\hline \text { December } 3,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2365 \\\hline \text { December } 31,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2456 \\\hline \text { March 1, 2016: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2480 \\\hline\end{array}$$

-Prepare the journal entries to record the receipt of the US$600,000 on March 1, 2016, assuming that Maplehauff Inc did not enter into a hedge transaction in December 2015.

Question 65

Maplehauff Inc. sells lumber to a number of clients around the world. On December 1, 2015 the company shipped some lumber to a client in the U.S. The selling price was established at US$600,000 with payment to be received on March 1, 2016. On December 3, 2015 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of US$1 = CDN$1.275. The forward contract was designated as a fair value hedge of the amount due from the American customer.
Maplehauff Inc. received the payment from its American client on March 1, 2016. The company's year-end is on December 31. The two-month forward rate for US dollars was CDN$1.255 on that date.
Selected spot rates were as follows:
$$\begin{array} { | l | l | } \hline \text { December 1, 2015: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2356 \\\hline \text { December } 3,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2365 \\\hline \text { December } 31,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2456 \\\hline \text { March 1, 2016: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2480 \\\hline\end{array}$$

-Prepare any and all journal entries arising from this transaction.