HCB,a Canadian Public Company,entered into the Following Transactions Late in 20X6

question 40

Essay

HCB,a Canadian public company,entered into the following transactions late in 20X6:
• Transaction #1 - On October 15,HCB purchased inventory from a Mexican supplier for 800,000 pesos (Ps).On the same day,HCB entered into a forward contract for Ps 800,000 at the 60-day forward rate of Ps1 = $0.399.The company has designated this as a fair value hedge.The Mexican supplier was paid in full on December 15,20X6.
• Transaction #2 - On November 1,HCB contracted to sell inventory to a customer in Switzerland at a selling price of CHF 400,000.The contract called for the merchandise to be delivered to the customer on December 1,with payment to be received in Swiss francs by January 31,20X7.On November 1,HBC arranged a forward contract to deliver CHF 400,000 on January 31,20X7 at a rate of CHF1 = $1.20.The company has designated this as a fair value hedge on a firm commitment.
• On December 1,20X6,the forward rate on the Swiss francs to January 31,20X7 was CHF1 = $1.21
• The company has a December 31,20X6 year end.On this date the forward rates for the Swiss francs was CHF1 = $1.23.
HBC has a year-end of December 31.Spot rates were as follows during this period of time:
Required:
The company uses the gross method to record hedging transactions.Prepare the journal entries that HCB should make to record the events described above.

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Definitions:

Organic Compound

A chemical compound that contains carbon atoms covalently bonded to hydrogen atoms, possibly along with other elements such as oxygen, nitrogen, sulfur, and halogens.

Long-Term Energy

Refers to energy storage or potential energy resources that can be utilized over an extended period.

Unsaturated Fatty Acid

A type of fatty acid that contains one or more double bonds in its hydrocarbon tail, leading to lower melting points than saturated counterparts.

Saturated Fatty Acid

A type of fatty acid with no double bonds between the carbon atoms in the chain, leading to a maximum number of hydrogen atoms bonded to carbons.