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Prepare the journal entries to record the activity

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Reference no: EM132937953

Masprajuices Ltd., a Canadian company, with a December 31 year - end, entered into a contract on June 30, 20x0 to purchase equipment from a French supplier for 500,000 French francs (FF). The delivery date is expected to be October 31, 20x0, and settlement is to be made in French francs on April 30, 20x1. Masprajuices entered into a forward contract on April 30, 20x0. This contract was entered into in anticipation of the purchase of the equipment, but before final negotiations had been completed. The equipment was received as expected on October 31, 20x0.

Spot Rates

April 30, 20x0 1FF = $0.19 CDN

June 30, 20x0 1FF = $0.20 CDN

October 31, 20x0 1FF = $0.22 CDN

December 31, 20x0 1FF = $0.26 CDN

April 30, 20x1 1FF = $0.28 CDN

Forward Rates

April 30, 20x0 1FF = $0.21 CDN

October 31, 20x0 1FF = $0.25 CDN

December 31, 20x0 1FF = $0.24 CDN

April 30, 20x1 1FF = $0.27 CDN

Problem 1) Prepare the journal entries to record the activity in the years 2020 and 2021 related to the purchase of the equipment assuming that Masprajuices did not acquire the forward contract.

Problem 2) Prepare the journal entries to record the activity related to the purchase of the equipment assuming that Masprajuices did acquire the forward contract and identified it as a cash flow hedge of the purchase of equipment.

Reference no: EM132937953

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