RXN's Year-End Is on December 31 *For Contracts Expiring on March 1, 2020
Assuming That the When

question 61

Multiple Choice

RXN's year-end is on December 31. On November 1, 2019 when the U.S. dollar was worth CDN$1.365, RXN sold merchandise to an American client for US$300,000. Full payment of this invoice was expected by March 1, 2020. On December 1, the spot rate was CDN$1.3450 and the three-month forward rate was CDN$1.3250. In order to minimize its Foreign Exchange risk and exposure, RXN entered into a forward contract with its bank on December 1, 2019 to deliver US$300,000 in three months' time. The spot rate at year-end was CDN$1.36 and the forward rate from December 31, 2019 to March 1, 2020 was CDN$1.34. On March 1, 2020, RXN received the US$300,000 from its client and settled its contract with the bank. The forward contract was to be accounted for as a fair value hedge of the US dollar receivable.
Significant dates and exchange rates pertaining to this transaction are as follows:
$\begin{array}{|l|r|r|}\hline & \text { Spot Rates } & \text { Forward Rates } \\\hline \begin{array}{l}\text { November } 1,2019(\text { Transaction } \\\text { date) }\end{array} & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.365 & \\\hline \begin{array}{l}\text { December } 1,2019 \text { (Hedged } \\\text { date) }\end{array} & \text { US\$1=CDN\$1.3450 } & \text { US\$1=CDN\$1.3250 } \\\hline \text { December } 31,2019 \text { (Year-end) } & \text { CDN\$1.36 } & \text { CDN\$1.34 } \\\hline \text { March } 1,2020 \text { (Settlement date) } & \text { US\$1=CDN\$1.368. } & \text { US\$1=CDN\$1.368. }\\\hline\end{array}$ *for contracts expiring on March 1, 2020
Assuming that the accounts receivable balance was not adjusted on December 1, 2019, what adjustment (if any) would be required to RXN's year-end accounts receivable balance?

• A) A CDN$3,000 decrease.
• B) A CDN$1,500 decrease.
• C) A CDN$3,000 increase.
• D) No adjustment is required.

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