Canada Corp The Two-Month Forward Rate on December 31, 2019 Was 1Yen

question 64

Essay

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2019 the company shipped some lumber to a client in Japan. The selling price was established at 500,000 Yen with payment to be received on March 1, 2020.
On December 3, 2019 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer.
Canada Corp received the payment from its Japanese client on March 1, 2020. Canada Corp's year end is on December 31.
Selected spot rates were as follows:
$$\begin{array} { | l | r |} \hline \text { December } 1,2019 : & 1 \text { Yen } = \text { CDN\$1.155 } \\\hline \text { Decerrber 3, 2019: } & 1 \text { Yen } = \text { CDN } \$ 1.155 \\\hline \text { Decerrber 31,2019: } & 1 \text { Yen } = \text { CDN } \$ 1.1625 \\\hline \text { March } 1,2020 : & 1 \text { Yen } = \text { CDN\$ } 1.1750 \\\hline\end{array}$$ The two-month forward rate on December 31, 2019 was 1Yen = CDN$1.1800.
The two-month forward rate on December 31, 2019 was 1Yen = CDN$1.1800.
Prepare a partial Balance Sheet for Canada Corp on December 31, 2019 showing the account receivable from the Japanese client as well as the accounts associated with the hedge. Assume Canada Corp used the gross method to record the forward contract.

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