Canada Corp The Two-Month Forward Rate on December 31, 2016 Was 1Yen

question 60

Essay

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 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, 2017.
On December 3, 2016 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, 2017. Canada Corp's year end is on December 31.
Selected spot rates were as follows: $$\begin{array} { | l | l | } \hline \text { December 1, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 3, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \\\hline \text { December 31, 2016:} & 1 \text { Yen } = \text { CDN } \$ 1.1626 \\\hline \text { March 1, 2017: } & 1 \text { Yen } = \text { CDN } \$ 1.1750 \\\hline\end{array}$$ The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800.
-Prepare the journal entries to record the receipt of the 500,000 Yen on March 1, 2017, assuming that Canada Corp did not enter into a hedge transaction in December 2016.

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Definitions:

Increasing-Cost Industry

An industry where the costs of production increase as the industry expands, often due to factors like limited resources or increased prices for inputs.

Market Demand

The total demand for a product or service within a particular market, summed from all individual demands.

LAC Curve

Long-Run Average Cost curve, a graphical representation showing the minimum average cost of production at different levels of output when input prices and technology remain constant.

Constant-Cost Industry

A constant-cost industry is an industry where the costs of production, including inputs, do not change as the industry's output changes.