Short Link Company (SLC)issued a Purchase Order to Buy a Machine

question 47

Essay

Short Link Company (SLC)issued a purchase order to buy a machine from Frankfurt Ltd. ,a German company,on April 2,20X6.The contract price is €650,000 and delivery is to occur on August 31,20X6.Payment is due on October 15,20X6.
SCL entered into a forward contract to hedge against the Euro exchange rate for €1 million coming due on August 31,20X6.SLC has a December 31 year end.
Delivery of the machine occurred on the date specified and the company paid the amount and settled the forward contract October 15,20X6.
The exchange rates were as followed:

Required:
SLC reports under ASPE.
a.Explain how the forward contract will be accounted for under ASPE.
b.Prepare the journal entries to record the above transactions.

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Definitions:

Economic Profits

The surplus achieved when revenue generated from business activities exceeds both explicit and implicit costs.

Long Run

A period of time in which all factors of production and costs are variable, and firms can adjust all inputs.

Competitive Price-searcher

A market condition where sellers actively set prices and seek to differentiate their products in an effort to attract consumers in a competitive environment.

Economic Losses

Financial losses incurred by businesses or economies, often due to inefficiencies, misallocation of resources, or external factors.