What amounts would appear in each of



Question 1
On October 1, 2013, Canadex Inc., a Canadian company, issued a purchase order to Ameriprod in the
United States for the purchase of 40,000 gadgets at a cost of US$2.50 per gadget, payable 90 days
after arrival of the gadgets. Title was to change hands on receipt of the gadgets. The gadgets
arrived on October 31. On November 30, Canadex entered into a forward purchase contract with its
bank to purchase US$100,000 for delivery on January 31, 2014. The forward contract price was
fixed at $1.30 per US$1 and was designated as a fair value hedge of the payable to Ameriprod.
On November 30, the entire inventory of gadgets was sold to a French company at a selling price of
€3.00 per gadget and the gadgets were shipped on that date at the purchaser’s risk. Payment was
due on December 31 and was received on that date.
Relevant (spot) exchange rates were as follows:
October 1, 2013
October 31, 2013
November 30, 2013
December 31, 2013
January 31, 2014

US$1.00 = Can$1.33
US$1.00 = Can$1.35
US$1.00 = Can$1.33
US$1.00 = Can$1.31
US$1.00 = Can$1.28

€1.00 = Can$1.88
€1.00 = Can$1.89
€1.00 = Can$1.90
€1.00 = Can$1.93
€1.00 = Can$1.92

On December 31, 2013, the forward rate to January 31, 2014, was US$1.00 = Can$1.29,

What amounts would appear in each of the following accounts in the financial statements of
Canadex for its year ended December 31, 2013 with respect to these transactions?

Cost of sales
Accounts payable
Exchange gains or losses (through net income) (state clearly whether it is a gain or a loss)
Forward contract (state clearly whether it is a debit or credit balance).

On October 1, 2013, Swallow Inc. was incorporated in Canada. On March 1, 2014, the company
placed an order with Supplier AG, a German company, to purchase 30,000 gourmets at a cost of
€3.50 per gourmet with delivery due on May 1 and payment due on August 1. The goods were to be
shipped at the risk of the supplier. On April 1, the company made a forward purchase of €105,000
for delivery on August 1 at a contract rate of Can$1.56 per Euro. The shipment of gourmets arrived
on time on May 1. This contract was designated as a cash flow hedge of the purchase of gourmets
from the German supplier. On August 1, the company settled the forward purchase with the bank
and paid the supplier.
Exchange rates during 2014 were as follows:
March 1
April 1
May 1
June 1
June 30
July 15
August 1

€1.00 = Can$1.42
€1.00 = Can$1.41
€1.00 = Can$1.43
€1.00 = Can$1.43
€1.00 = Can$1.44
€1.00 = Can$1.45
€1.00 = Can$1.47

Forward to Aug 1
€1.00 = Can$1.55
€1.00 = Can$1.56
€1.00 = Can$1.53
€1.00 = Can$1.52
€1.00 = Can$1.51
€1.00 = Can$1.49
€1.00 = Can$1.47

Required: Prepare dated journal entries for Swallow Inc. to record the transactions set out above.


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