Each of the following situations is independent of the others. Orion Industries

Question

Each of the following situations is independent of the others. Orion Industries is a U.S. with a December 31 year-end. Use the following information on exchange rates (U.S.S/Canadian S) to answer each question. company Forward Rate for Spot Rate February 1, 2018 Delivery September 1, 2017 October 1, 2017 December 31, 2017 February 1, 2018 $0.754 0.765 0.785 0.800 $0.760 0.766 0.787 0.800 Required For each situation, make the journal entries necessary to record the events, including year- end adjustments using the additional handout provided. On October 1, 2017, Orion Industries takes delivery of merchandise from Ontario a. Suppliers. Orion pays Ontario Suppliers C$100,000 on February 1, 2018. This is an unhedged import transaction. To help get started, the journal entries for October and December 31, 2017 are provided. On September 1, 2017, Orion Industries issues a purchase order to buy merchandise from Ontario Suppliers. Delivery will take place on October 1, 2017, and Orion will pay Ontario Suppliers C$100,000 on February 1, 2018. On September 1, 2017, Orion enters into a forward contract with XYZ Exchange for the purchase of C$100,000, to be delivered February 1, 2018. The forward is a hedge of a firm purchase commitment. Delivery and payment occur as planned. [Note: On October 1, 2017 make a journal entry to recognize the value of the investment in forward contract; also make a journal entry to record the value of the firnm commitment. This entry will be in the same amount as the entry to the forward contract.] On September 1, 2017, Orion Industries forecasts that it will buy merchandise from a Canadian supplier. Delivery and payment of C$100,000 is expected to take place on February 1, 2018. On September 1, 2017, Orion enters into a forward contract with XYZ Exchange for the purchase of C$100,000, to be delivered February 1, 2018. The forward is a hedge of a forecasted transaction. The merchandise purchase occurs as forecasted, and the merchandise is sold in March, 2018 for $99,000 in cash. Orion records cost of goods sold at the time of sal c.

Explanation / Answer

Since, each part is independent of each other, I have answered the first two parts completely.

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Part a)

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Part b)

The journal entries have been prepared as below:

Date Account Titles Debit Credit 01-10-2017 Inventory (100,000*.765) $76,500 Accounts Payable $76,500 (To record purchase of merchandise) 31-12-2017 Exchange Loss [100,000*(.785 - .765)] $2,000 Accounts Payable $2,000 (To adjust the value of accounts payable at the end of the year) 01-02-2018 Exchange Loss [100,000*(.800 - .785)] $1,500 Accounts Payable $1,500 (To adjust the value of accounts payable at 1st February 2018) 01-02-2018 Accounts Payable (100,000*.800) $80,000 Cash $80,000 (To record payment to the supplier)

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