Helvetia Corp The Account Was Hedged by Bouchard Through a 30-Day Forward

question 42

Essay

Helvetia Corp., a Swiss firm, bought merchandise from Bouchard Company of Quebec on December 15, 20X7, for 20,000 CHF, payable on January 14, 20X8. Bouchard and Helvetia both close their books on December 31. The 20,000 CHF was paid on January 14, 20X8. The exchange rates for CHF1 were:
$\begin{array}{ll}\text { December } 15,20X7 \text { spot } & C \$ .9740 \\\text { December } 15,20X7\text { 30-day forward } & C \$ 9800 \\\text { December } 31,20X7 & C \$ .9700 \\\text { December } 31,20X7 \text { 14-day forward } & C \$ .9730 \\\text { lanuary } 14,20 \times 8 & C \$ .9720\end{array}$
The account was hedged by Bouchard through a 30-day forward contract. Bouchard uses the gross method to record hedge transactions. Bouchard reports under IFRS.
- Required:
1. Provide the journal entries for Bouchard (the seller)at each of the above dates, as required. The account was not hedged by Bouchard.
2. What is hedging and why might Bouchard have decided not to hedge this transaction? What risk is Bouchard incurring?

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