Question

On December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to purchase 200,000 Canadian dollars (C$). Denizen's fiscal year ends on December 31. The forward contract was to hedge an anticipated purchase of electronic goods on January 30, 20X9. The purchase took place on January 30, with payment due on March 31, 20X9. The derivative is designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge effectiveness. The direct exchange rates follow:

	Spot Rate	Forward Rate for March 1, 20X9
December 1, 20X8	0.940	0.944
December 31, 20X8	0.945	0.947
January 30, 20X9	0.942	0.943
March 31, 20X9	0.941

Required:

Prepare all journal entries for Denizen Corporation.

Answer 1

Page 1 On decomber-1,2018 Denizon compony entered into - 120 day forward contract to purchase, 2,00,000 candian dollars (66) by using the above direct exchange rates the information provided below are the journal entries for Denizen corporation: December 1 2008 foreign currency receivable from exchange booker C$) 198,800 Dollars pooyable to exchange broker ($) 188,800 signed 120-day forward contract to hedge foreign cuttency commitment to putchase electronic goods. on January 30 for $200,000 $ 188,800 = $2,00,000 X $.944 forward rate December 31 2008 foreign cuotency beceivable from exchange broker c$ = 600 foreign cubbency transaction gain = 600 Revalue foreign currency receivable to fair value & 189, 400 = $2,00,000+ $947 dec 31 forward rate - 188,800 = $2,00,000 $944 dec I forward rate $ 600 -$2,00,000 * $.947-$944)

Page-2 foreign currency transaction loss &- 600 from commitment - 600 record loss on the financial Prstrument . aspect of the firom commitment $600 = $2,00,000 & $ (1947 - $944) January 30, 2009 foreign currency transaction loss - 800 foreign currency receivable from exchange booker poo * Revalue foreign currency receivable to current US dollary equivalent is " $ 188,600= $2,00,000x$ 943 Jan 30,2009 -189,400 = $2,00,000 $947 Dec-31 2008 $800 = $2,000000 x 1.943 - $.947) from commitment - 800 y foreign curtency transaction gain - 800 * Record the gain on the financial instrument aspect of the from commitment $ 800 = C$ 2,00,000 *$.943 - $947)

Page 3 Inventory of prochasos - 188,600 from commitment - 200 - Accounts payable (C$) - 188,400 * A quire electronic goods initially committed on December 1, 2008 $ 188, 400 = $2,00,000 $.942 spot rate March -31, 2009 foreign currency transaction loss - 400 foreign currency Receivable from exchange - - booker - 400 * Revaule foreign currency receivables- $ 188, 200 = 662,00,000 $941 mar 31 spotcrate - 188, 600=C$2100,000x$.943 Jan 30 for coard rate $ 400 = $2,00,000 x$ 1941-$.943) Acounts payable (cd). foreign currency transaction gain- 200 *Revalue foreign currency payable: $ 188, 200 = $2,00,000+$.941 mar 31 spotrate - 188, 400 = C$2,00, ooox $.942 Jan 130 spot rate $ 200 _FC$209,000 (.941-$.942)

Page 4 Dollar payable to exchange broker (&)- 188,800 Cash - 188,800 Deliver us dollars to exchange brokes - Foreign currency units (C$) - 188,200 foreign currency receivable (c) 188,200 * Receive c62100,000 from booker in accordance with foward contract signed on decal $188,200 = ($200,000 x8.94 I maral spot rate *Accounts payable (e) - 188,200 y forergh Casrency units (C$) - 188,200 > Deliver c$ 2100,000 to foreign creditor - x -