Our firm sold equipment to a company in France for 300,000 on December 1, Year...
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Our firm sold equipment to a company in France for 300,000 on December 1, Year 6. Our year end is December 31, and the receivable is due on February 28, Year 7. On December 1, Year 6, we entered into a forward exchange contract with the bank to provide them with 300,000 on February 28, Year 7, in return for Canadian dollars at a forward rate of Euro 1 = CDN $1.46. This is classified as a fair value hedge.
Required: Provide all of the necessary journal entries to record both the account payable and the hedge (use a journal entry to record the hedge). Our firm records the hedge at inception.
Forward Rates: December 1, Year 6; 90 day forward rate 1=CDN$1.46 December 31, Year 6; 60 day forward rate 1=CDN$1.48 Spot rates: December 1, Year 6 1=CDN1.48 December 31, Year 6 1=CDN$1.49 February 28, Year 7 1=CDN$1.53
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