Our firm purchased equipment for 200,000 Artemedal dollars (AD$) on December 1, 2016. Our year...
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Accounting
Our firm purchased equipment for 200,000 Artemedal dollars (AD$) on December 1, 2016. Our year end is December 31, and the payable is due on February 28, 2017. On December 1, 2016, we entered into a forward exchange contract with the bank to provide us with 200,000 ADs on February 28, 2017. This is classified as a fair value hedge.
The following rates were in effect:
Forward Rates:
December 1, 2016; 90 day forward rate AD$1 = CDN$ .62
December 31, 2016; 60 day forward rate AD$1 = CDN$ .60
Spot rates:
December 1, 2016 AD$1 = CDN$ .64
December 31, 2016 AD$1 = CDN$ .61
February 28, 2017 AD$1 = CDN$ .59
Required:
Provide all the necessary journal entries to record both the account payable and the hedge.
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