Use the following forward and spot prices for Canadian dollars (C$) to answer qu

Question

Use the following forward and spot prices for Canadian dollars (C$) to answer questions 3-9 below. The prices are in US dollars ($/C$).

Spot Rate Forward rate for 4/15/17 delivery of Candian dollars Nov. 15, 2016 $0.905 $0.895 Dec. 31, 2016 0.965 0.950 March 1, 2017 0.920 0.915 April 15, 2017 0.940 0.940 er 15,2016, a U.S. company vembe and records an account payable. On the an suppiuS. dollar purchasc price of C$1,000,000, f takes delivery of merchandise costing deli Foreign Currency Transactions and Hedging on 361 CS1 ,000,000 from a Cana- company enters a forward contract lock- in and payment is made to su 0 very on April 15,2017. The forward contract ose aAssuming the company still holds the merchandise at Decemibera 20at at amount is the supplier on April 15, 2017. The company's LO2 i reported? the $895,000 a- b. $905,000 . $950,000 d $965,000 ation from question 3. What is the net exchange gain or loss for 2017? Use the information $15,000 gain LO 20 a. b. $25,000 loss . $10,000 loss d. $25000 gain er 15, 2016. a U.S. company issues a purchase order to a Canadian supplier for merchandise LO3 .000,000. On the same date, the company enters a frwardctract 5. of C$1,000,000, for delivery on April 15, 2017.The forward qualifies as a hedge of the irm Delivery of the merchandise takes place on March 1,2017, and the forward contract is closed commiument is made to the supplier on April 15, 2017. How is the forward contract reported on the com- December 31,2016, balance shcet? a $60,000 asset b. $60,000 liability c. $55,000 liability d. $55,000 asset in Ital Use the information from question 5. After delivery, at what company's books? amount is the merchandise carried on the US. LO 3 0 a. $895,000 b. $900,000 c. $905,000 d. $915,000 US. company expects to buy merchandise from a Canadian supplier for approximately C$1,000,000, in the LO 4 middle of April. On November1 chase price of C$1,000,000, for delivery on April 15, 2017. The forward qualifies as a hedge of the forecasted transaction. Delivery of the merch 7. A Italy. ugust es place on April 15, 2017, and the forward contract is closed and on delivery on April 15, 2017? a. $895,000 b. $905,000 c. $940,000 d. $950,000 B. Uis the nsfomation from question 7. When th cost of goods sold? a. $895,000 b. $905,000 c. $940,000 d. $950,000 pril 15, 2017. The contract does not qualify for hedge accounting. What is the gain or loss on contract that is reported on the company's 2017 income statement? On March 1,2017,a U.S. company enters a forward contractlocking in the selling price of CS1,000,00, for Los te forward a. $ 5,000 loss b. $20,000 gain c. $25,000 loss d. $ 5,000 gain

Explanation / Answer

Answer 3

Spot as on 31st Dec is 0.965, while company has booked forward contract at $0.895, since it is baneficial for company to execise the forward contract and pay to vendor, company will report the merchandise at $895,000 (10,00,000*0.895)

Answer 4

Exchange gain for 2017 (.905-.895)*1,000,000 = $10,000

Answer 5

Amount will be reported on 31st dec as (.905-.965)*1,000,000 = 60,000 Liability

Answer 6

Since spot rate is higher as on 15th april, company will exercise forward contract and pay to merchandise.

So amount at which merchandise will be reported is = $895,000 (0.895*1,000,000)

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