On July 1, 2019, North Inc *For Contracts Expiring on November 15, 2019
What Is the Merchandise

question 11

Multiple Choice

On July 1, 2019, North Inc., based in Alberta, ordered merchandise from an American supplier for US$600,000. Delivery was scheduled for the month of October, with payment to be made in full on November 15, 2019. Once the order was placed, North entered into a forward contract with its bank to purchase US$600,000 on the settlement date at the forward rate of CDN$1.3625. The forward contract was designated as a cash flow hedge of the cash flow required to settle with the American supplier.
The merchandise was received on October 1, 2019, when the spot rate was US$1 = CDN$1.3575. On October 31, the company's year-end, the spot rate was $1.3690. North purchased the U.S. dollars to pay its supplier on November 15, 2019 when the spot rate was CDN$1.3725. The forward rate to November 15, 2019, was CDN$1.365 on October 1 and CDN$1.37 on October 31.
A summary of the significant dates and exchange rates pertaining to this transaction are as follows:
$\begin{array}{|l|r|r|} \hline& \text { Spot Rates } & \text { Forward Rates } \\\hline \begin{array}{l}\text { July } 1,2019 \text { (Order date and } \\\text { hedge date) }\end{array} & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.3445 & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.3625 \\\hline \text { October } 1,2019 \text { (Delivery date) } & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.3575 & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.365 \\\hline \text { October 31,2019(Year-end) } & \text { CDN\$1.369 } & \text { CDN\$1.37 } \\\hline \begin{array}{l}\text { November } 15,2019 \text { (Settlement } \\\text { date) }\end{array} & \text { US\$1=CDN\$1.3725 } & \text { US\$1=CDN\$1.3725 }\\\hline\end{array}$ *for contracts expiring on November 15, 2019
What is the cost of the inventory to North if the exchange gain or loss on the forward contract is adjusted to the value of the inventory on the delivery date?

• A) CDN$806,700
• B) CDN$819,000
• C) CDN$814,500
• D) CDN$813,000

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Definitions:

Common Stock Repurchases

The act of a company buying back its own shares from the marketplace, which can reduce the number of outstanding shares and often increase the value of remaining shares.

Dividends

Profit shares dispensed by a business to its stakeholder members, frequently sourced from the corporate earnings.

Cash Flow

The comprehensive tally of funds being shuffled in and out of a corporation, impacting its short-term financial stability.

Creditors

Individuals, businesses, or financial institutions that have lent money or extended credit and are owed repayment of the debt.