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You are a controller at YY Trading Ltd. YY has increased inventory purchases with Mexican...

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Accounting

You are a controller at YY Trading Ltd. YY has increased inventory purchases with Mexican suppliers in recent years. To protect against exchange rate fluctuations, you decided to arrange a term loan in Mexican Peso with your bank. On December 31, 2018, a loan of Peso 3,350,000 was arranged with an interest rate of 8.25% per year. Interest is payable at the end of each year. The term loan would mature at the end of 2021 when your company will pay back the full loan amount. You designated this loan as a cash flow hedge of future inventory purchases. According to your budget, you expected the following inventory purchases (in Mexican Peso) in the following years: 2019- 1,100,000, 2020- 1,250,000, 2021- 1,000,000 Exchange rates for Mexican Peso at the year-end date of the past four years were as following: 2018- 0.06744 2019- 0.06894 2020-0.06267 2021-0.06057 Your company's year-end is on December 31. Required: Prepare the journal entries required for 2019, 2020 and 2021 related to this cash flow hedge.

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