Reference no: EM133059855
Question - Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2013 the company shipped some lumber to a client in Japan. The selling price was established at 500,000 Yen with payment to be received on March 1, 2014.
On December 3, 2013 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1Yen=$1.1850 CDN.
Canada Corp received the payment from its Japanese client on March 1, 2014. Canada Corp's year end is on December 31.
Selected spot rates were as follows:
December 1, 2013: 1 Yen = $1.155 CDN
December 3, 2013: 1 Yen = $1.155 CDN
December 31, 2013: 1 Yen = $1.1625 CDN
March 1, 2014: 1 Yen = $1.1750 CDN
Selected forward rates were as follows:
December 3, 2013 90 day forward 1 Yen = $1.1850 CDN
December 31, 2013 60 day forward 1 Yen = $1.1700 CDN
March 1, 2014: 1 Yen = $1.1750 CDN
Required -
A) Prepare any and all journal entries arising from the transactions above assuming Canada Corp. has elected to use hedge accounting.
B) Prepare the journal entries to record the receipt of the 500,000 Yen on March 1, 2014, assuming that Canada Corp did not enter into a hedge transaction in December 2013.
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