Each of the Following Situations Is Independent of the Others

Essay

Each of the following situations is independent of the others. Orion Industries is a U.S. company with a December 31 year-end, that regularly has transactions denominated in Canadian dollars. Use the following information on exchange rates (U.S.$/C$) to answer each question.
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { February 1, 2021 Delivery }\end{array} \\\hline \text { September 1, 2020 } & \$ 0.774 & \$ 0.780 \\\hline \text { October 1, 2020 } & 0.785 & 0.786 \\\hline \text { December 31, 2020 } & 0.805 & 0.807 \\\hline \text { February 1, 2021 } & 0.820 & 0.820 \\\hline\end{array}$$ Required
For each situation, make the journal entries necessary to record the events, including year-end adjustments.
a. On October 1, 2020, Orion Industries takes delivery of merchandise from Ontario Suppliers. Orion pays Ontario Suppliers C$100,000 on February 1, 2021. This is an unhedged import transaction.
b. On September 1, 2020, Orion Industries issues a purchase order to buy merchandise from Ontario Suppliers. Delivery will take place on October 1, 2020, and Orion will pay Ontario Suppliers C$100,000 on February 1, 2021. On September 1, 2018, Orion enters into a forward contract with XYZ Exchange for the purchase of C$100,000, to be delivered February 1, 2021. The forward is a hedge of a firm purchase commitment. Delivery and payment occur as planned.
c. The CFO at Orion Industries believes that the U.S. dollar will strengthen with respect to the Canadian dollar. On October 1, 2020, she enters into a speculative forward sale contract with XYZ Exchange for delivery of C$100,000 on February 1, 2021. She closes the contract with an opposite position on December 31, 2020.
d. On September 1, 2020, Orion Industries forecasts that it will buy merchandise from a Canadian supplier. Delivery and payment of C$100,000 is expected to take place on February 1, 2021. On September 1, 2020, Orion enters into a forward contract with XYZ Exchange for the purchase of C$100,000, to be delivered February 1, 2021. The forward is a hedge of a forecasted transaction. The merchandise purchase occurs as forecasted, and the merchandise is sold in March, 2021 for $115,000 in cash. Orion records cost of goods sold at the time of sale.