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, it developed a small market in Argentina. In Year 4, HMC 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 807,000 Romanian leus (RL). On the same day, HMC entered into a forward contract for RON807,000 at the 60-day forward rate of RON1 = $0.415. 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 2,507,000 Argentinean pesos (ARS), with payment to be received on January 31, Year 5. HMC immediately entered into a forward contract for ARS2,507,000 at the two-month forward rate of ARS1 = $0.233.
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, it developed a small market in Argentina. In Year 4, HMC 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 807,000 Romanian leus (RL). On the same day, HMC entered into a forward contract for RON807,000 at the 60-day forward rate of RON1 = $0.415. 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 2,507,000 Argentinean pesos (ARS), with payment to be received on January 31, Year 5. HMC immediately entered into a forward contract for ARS2,507,000 at the two-month forward rate of ARS1 = $0.233.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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, it developed a small market in
Argentina. In Year 4, HMC 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 807,000 Romanian leus (RL). On the same day, HMC entered into
a forward contract for RON807,000 at the 60-day forward rate of RON1 =
$0.415. 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 2,507,000 Argentinean pesos (ARS), with payment to be
received on January 31, Year 5. HMC immediately entered into a forward
contract for ARS2,507,000 at the two-month forward rate of ARS1 = $0.233.
Transcribed Image Text:During this period, the exchange rates were as follows:
October 15, Year 4
December 1, Year 4
December 15, Year 4
December 31, Year 4
Spot Rates
RON1 $0.402
ARS10.256
RON1 $0.394
RE
ARS1 $0.240 ARS1 = $0.229
Forward Rates
Hedge accounting is not adopted.
Required:
(a) Prepare the Year 4 journal entries to record the transactions described above and
any year-end adjusting entries. (If no entry is required for a transaction/event, select
"No journal entry required" in the first account field.)
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