Reference no: EM132554643
Bunting Industries Inc., a Canadian public company, entered into a sales contract on November 17, 2014, to sell some specialized equipment to Robin plc, a Scottish company, for £500,000. The equipment was to be delivered to the customer on February 15, 2015, with payment due on April 15, 2015. In order to hedge this anticipated receivable, Bunting entered into a forward contract on November 17, 2014, with its bank to sell to the bank £500,000 on April 15, 2015. This contract was designated as a cash flow hedge of the expected receivable from Robin plc.
Exchange rates for the sale of British Pounds over this period were:
The equipment changed hands on February 15, 2015, as expected and Bunting received payment and settled with its bank on April 15, 2015. Cost of the equipment to Bunting Industries Inc. was $650,000.
Required:
Question a) Prepare journal entries to record the transactions set out above. Include adjusting entries at each quarter end as Bunting is required to prepare quarterly financial statements for the market.
Question b) What balances will appear on the December 31, 2014, balance sheet of Bunting Enterprises Inc. with respect to these transactions? Indicate whether each such balance is a debit or a credit.
Question c) What balances will appear on the March 31, 2015, balance sheet of Bunting Enterprises Inc. with respect to these transactions? Again indicate whether each such balance is a debit or a credit.
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