Exam 10: Foreign Currency Transactions

RXN's year-end is on December 31. On November 1, 2019 when the U.S. dollar was worth CDN$1.365, RXN sold merchandise to an American client for US$300,000. Full payment of this invoice was expected by March 1, 2020. On December 1, the spot rate was CDN$1.3450 and the three-month forward rate was CDN$1.3250. In order to minimize its Foreign Exchange risk and exposure, RXN entered into a forward contract with its bank on December 1, 2019 to deliver US$300,000 in three months' time. The spot rate at year-end was CDN$1.36 and the forward rate from December 31, 2019 to March 1, 2020 was CDN$1.34. On March 1, 2020, RXN received the US$300,000 from its client and settled its contract with the bank. The forward contract was to be accounted for as a fair value hedge of the US dollar receivable. Significant dates and exchange rates pertaining to this transaction are as follows: Spot Rates Forward Rates November 1,2019( Transaction date) \ 1=\ 1.365 December 1,2019 (Hedged date) US \1 =CDN \1 .3450 US \1 =CDN \1 .3250 December 31,2019 (Year-end) CDN \1 .36 CDN \1 .34 March 1,2020 (Settlement date) US \1 =CDN \1 .368. US \1 =CDN \1 .368. *for contracts expiring on March 1, 2020 Assuming that the accounts receivable balance was not adjusted on December 1, 2019, what adjustment (if any) would be required to RXN's year-end accounts receivable balance?

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2019 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, 2020. On December 3, 2019 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, 2020. Canada Corp's year end is on December 31. Selected spot rates were as follows: Decernber 1,2019: 1 Yen = CDN \ 1.155 December 3,2019: 1 Yen = CDN \ 1.155 December 31,2019: 1 Yen = CDN \ 1.1625 March 1,2020: 1 Yen = CDN \ 1.1750 The two-month forward rate on December 31, 2019 was 1Yen = CDN$1.1800. Assuming Canada Corp. used the gross method to record the forward contract, prepare any and all journal entries arising from this transaction.

Which of the following statements is correct?

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2019 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, 2020. On December 3, 2019 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, 2020. Canada Corp's year end is on December 31. Selected spot rates were as follows: December 1,2019: 1 Yen = CDN \1 .155 Decerrber 3, 2019: 1 Yen = CDN \ 1.155 Decerrber 31,2019: 1 Yen = CDN \ 1.1625 March 1,2020: 1 Yen = CDN\ 1.1750 The two-month forward rate on December 31, 2019 was 1Yen = CDN$1.1800. The two-month forward rate on December 31, 2019 was 1Yen = CDN$1.1800. Prepare a partial Balance Sheet for Canada Corp on December 31, 2019 showing the account receivable from the Japanese client as well as the accounts associated with the hedge. Assume Canada Corp used the gross method to record the forward contract.

On July 1, 2020, CANCO purchased inventory from its main U.S. supplier, RNB Enterprises, at a cost of US$12,000. CANCO's year end is on July 31. Payment of US$12,000 for the inventory is due on August 31, 2020. Some important dates regarding this transaction, as well as the exchange rates in effect at each of these dates are shown below: Trarsaction date: July 1,2020: 1 U.S. Dollar = CDN 1.370 Year end July 31,2020: 1 U.S. Dollar = CDN \ 1.345 Setternent date: August 31,2020: 1 U.S. Dollar = CDN \ 1.325 What would be the amount of the foreign exchange gain or loss recorded at the settlement date?