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:

Persuasion

The process of convincing someone to do or believe something through reasoning or the use of temptation.

Norm Of Reciprocity

A social norm that suggests individuals respond to each other in kind, returning benefits for benefits received.

Same Size

Equivalent or equal in magnitude, amount, or dimensions.

Dramatic Nature

The quality of being strikingly emotional or theatrical in character or events.