Question

Hull Manufacturing Corp. (HMC), a Canadian company, manufactures Instruments used to measure the moisture content of barley and wheat. The company sells primarily to the domestic market, but in Year 3 began purchasing semi-finished components from a supplier in Romania. The management of HMC is concerned about the possible adverse effects of foreign exchange fluctuations. To deal with this matter, all of HMC's foreign currency-denominated receivables and payables are hedged with contracts with the company's bank. The year-end of HMC is December 31 The following transactions occurred late in Year 4: • On October 15, Year 4, HMC purchased components from its Romanian supplier for 810,000 Romanian leus (RL). On the same day, HMC entered into a forward contract for RON810,000 at the 60-day forward rate of RON1 = $0.418. The Romanian supplier was paid in full on December 15, Year 4. On December 1, Year 4. HMC made a shipment to a customer in Argentina. The selling price was 2.510,000 Argentinean pesos (ARS), with payment to be received on January 31, Year 5. HMC immediately entered into a forward contract for ARS2,510,000 at the two-month forward rate of ARS1 - $0.236. During this period, the exchange rates were as follows: Forward Rates October 15, Year 4 December 1, Year December 15, Year December 31, Year 4 Spot Rates RONI 50.405 10.259 RONI 50.397 ARSI 30.241 ARS - 50.232 Hedge accounting is not adopted

Answer 1

Ans- Journal Entries

S.N.	PARTICULARS	DEBIT ($)	CREDIT ($)
1	PURCHASE OF INVENTORY
	PURCHASE ACCOUNT	328050
	TO ROMANIA SUPPLIER		328050
	(BEING GOODS PURCHASED)
2	FORWARD CONTRACT ENTERED WITH ROMANIA LEUS
	FORWARD CONTRACT	10530
	TO ROMANIA SUPPLIER		10530
	(BEING ENTERED IN FORWARD CONTRACT)
3	SALE OF GOODS TO ARGENTINEAN PESOS
	ARGENTINEAN RECEIVABLE	650090
	TO REVENUE		650090
	(BEING GOODS SOLD)
4	FORWARD CONTRACT ENTERED WITH ARGENTINEAN PESOS
	FORWARD CONTRACT	57730
	TO ARGENTINEAN RECEIVABLE		57730
	(BEING ENTERED IN FORWARD CONTRACT)
5	ACCOUNT PAYABLE AT FAIR VALUE
	ROMANIA SUPPLIER	6480
	TO FOREIGN EXCHANGE GAIN		6480
	(BEING AMOUNT REVALUE)
6	FORWARD CONTRACT AT FAIR VALUE
	FOREIGN EXCHANGE LOSS	6480
	TO FORWARD CONTRACT		6480
	(BEING AMOUNT REVALUED)
7	PAYMENT TO ACCOUNT PAYABLE
	ROMANIA SUPPLIER	338580
	TO BANK		338580
	(BEING AMT PAID )