Short Link Company (SLC)issued a Purchase Order to Buy a Machine

Essay

Short Link Company (SLC)issued a purchase order to buy a machine from Frankfurt Ltd., a German company, on April 2, 20X6. The contract price is €650,000 and delivery is to occur on August 31, 20X6. Payment is due on October 15, 20X6.
SCL entered into a forward contract to hedge against the euro exchange rate for €650,000, coming due on August 31, 20X6. SLC has a December 31 year-end.
Delivery of the machine occurred on the date specified and the company paid the amount and settled the forward contract October 15, 20X6.
The exchange rates were as follows:
$$\begin{array} { | l | c | c | } \hline \text { Canadian equivalent of euro } & \text { Spot rate } & \begin{array} { c } \text { Forward rate to } \\\text { January } 30,20X7\end{array} \\\hline \text { April } 2,20X6 & 1.50 & 1.59 \\\hline \text { August } 31,20X6 & 1.63 & 1.67 \\\hline \text { October } 15,20X6 & 1.66 & \text { settled } \\\hline\end{array}$$ Required:
SLC reports under ASPE.
a. Explain how the forward contract will be accounted for under ASPE.
b. Prepare the journal entries to record the above transactions.