Question 1

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2013 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, 2014. On December 3, 2013 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1Yen = $1.185CDN. 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, 2014. Canada Corp's year end is on December 31. Selected spot rates were as follows:  Prepare the journal entries to record the receipt of the 500,000 Yen on March 1, 2014, assuming that Canada Corp did not enter into a hedge transaction in December 2013.

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Question 2

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Question 3

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Question 4

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Question 5

GWN has a July 31st 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.

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Question 6

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Question 7

Prepare any and all journal entries arising from this transaction.

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Question 8

On December 1, 2013 Compucat also shipped a batch of laptop computers to an American client for $250,000US. The invoice required that Compucat receive its payment in full by January 31, 2013. On the date of the sale, the company entered into a forward contract for $250,000US at the two-month forward rate of $1US = $1.25CDN. This forward contract was designated to be a fair value hedge of the amount due from the American customer. The dates and exchange rates relevant to these transactions are shown below.  Prepare the 2013 journal entries to record the above transactions. In addition, prepare any adjusting journal entries that you deem necessary.

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Question 9

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Question 10

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?

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Borrowing in the foreign currency with annual repayments equal to the expected annual revenue cash flows provides a natural hedge, as the foreign currency income can be used to make the repayments, thus minimizing the impact of exchange rate fluctuations.

Question 11

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Question 12

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Question 13

On September 1, 2013, Compucat purchased components from its German supplier for 100,000 Euros. On that date AMC entered into a forward contract for 100,000 Euros at the 60 day forward rate of 1Euro = $1.50CDN. The forward contract was designated as a fair value hedge of the amount payable to the German supplier. Compucat settled with the bank and paid its supplier in full on December 1, 2013. On December 1, 2013 Compucat also shipped a batch of laptop computers to an American client for $250,000US. The invoice required that Compucat receive its payment in full by January 31, 2013. On the date of the sale, the company entered into a forward contract for $250,000US at the two-month forward rate of $1US = $1.25CDN. This forward contract was designated to be a fair value hedge of the amount due from the American customer. The dates and exchange rates relevant to these transactions are shown below.  Prepare the December 31, 2013 Balance Sheet Presentation of the Receivable from the American client and the accounts associated with the hedge.

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Question 14

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Question 15

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

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Question 16

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

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Question 17

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Question 18

Prepare GRL's journal entries for each of 2011, 2012 and 2013.

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Question 19

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Question 20

Prepare a partial Balance Sheet for Canada Corp on December 31, 2013 showing the account receivable from the Japanese client as well as the accounts associated with the hedge.

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Quiz 10: Foreign Currency Transactions

GWN has a July 31st 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.

Prepare any and all journal entries arising from this transaction.

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?

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

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

Prepare GRL's journal entries for each of 2011, 2012 and 2013.

Prepare a partial Balance Sheet for Canada Corp on December 31, 2013 showing the account receivable from the Japanese client as well as the accounts associated with the hedge.