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:

Labor

The human effort, either physical or mental, employed in the production of goods and services.

Materials

Raw elements or substances used in the production or manufacturing of goods.

Variable Costs

Costs that change in proportion to the level of output or activity.

Total Costs

The sum of all expenses associated with the production of goods or services, including both fixed and variable costs.