On October 1, 2018, Aquaman Company purchased inventory from Storm Surge Corporation for euro (€) 200,000, with payment
Posted: Tue Apr 26, 2022 10:19 am
On October 1, 2018, Aquaman Company purchased inventory from
Storm Surge Corporation for euro (€) 200,000, with payment due on
February 1, 2019. On October 1, 2018, Storm Surge delivered the
inventory to Aquaman from its Toronto warehouse. Aquaman
immediately hedged € 170,000 of the payable by buying a forward
contract (at no cost) expiring on February 1, 2019.
The following exchange rates occurred during the period (the
forward rates shown all pertain to forward contracts expiring on
February 1, 2019):
a) Indicate how the hedge entered into by
Aquaman on October 1, 2018 should be classified. Support your
answer with facts from the question and discuss how
effective this hedge would be.
b) Prepare the journal entries or disclosure to be
recorded by Aquaman for the accounts payable and the fair
value hedge on the following dates:
i) October
1, 2018
ii) December
31, 2018
iii) February
1, 2019
c) Calculate the exchange gain or loss on both the
accounts payable and the forward contract to
be reported for the year ended December 31, 2019
(January 1 – December 31, 2019)
October 1, 2018 December 31, 2018 February 1, 2019 Spot Rate €1 = C$1.40 €1 = C$1.48 €1 = C$1.52 Forward Rate €1 = C$1.50 €1 = C$1.59 €1 = C$1.52 == = =
Storm Surge Corporation for euro (€) 200,000, with payment due on
February 1, 2019. On October 1, 2018, Storm Surge delivered the
inventory to Aquaman from its Toronto warehouse. Aquaman
immediately hedged € 170,000 of the payable by buying a forward
contract (at no cost) expiring on February 1, 2019.
The following exchange rates occurred during the period (the
forward rates shown all pertain to forward contracts expiring on
February 1, 2019):
- On October 1 2018 Aquaman Company Purchased Inventory From Storm Surge Corporation For Euro 200 000 With Payment 1 (24.03 KiB) Viewed 39 times
Aquaman on October 1, 2018 should be classified. Support your
answer with facts from the question and discuss how
effective this hedge would be.
b) Prepare the journal entries or disclosure to be
recorded by Aquaman for the accounts payable and the fair
value hedge on the following dates:
i) October
1, 2018
ii) December
31, 2018
iii) February
1, 2019
c) Calculate the exchange gain or loss on both the
accounts payable and the forward contract to
be reported for the year ended December 31, 2019
(January 1 – December 31, 2019)
October 1, 2018 December 31, 2018 February 1, 2019 Spot Rate €1 = C$1.40 €1 = C$1.48 €1 = C$1.52 Forward Rate €1 = C$1.50 €1 = C$1.59 €1 = C$1.52 == = =