SOLUTION: BUSI 4424 Nova Scotia Community College Advanced Accounting Worksheet

BUSI 4424 Advanced Accounting II
Instructor: Stacey Taylor, MEC, MBA, CPA, CMA
Assignment #1 (50 marks)
Due: February 5, 2021 by 11:59pm (Moodle)
Please prepare your assignment in Microsoft Excel or Numbers (for Mac) only. Open
Office is not supported. Also, in order to get full marks, please show any relevant FX
calculations to support your journal entries.
Question 1
Jalby Company sells heavy machinery. On October 1, Year 10, Jalby sold goods in the
amount of £850,000 (£ is Pounds Sterling) to QuadraTrane in the UK. Jalby accepted
a note receivable and payment is due from QuadraTrane on December 31 Year 14.
QuadraTrane has been in business for 3 decades and Jalby has conducted business
with them for the last 10 years; there is no risk of default. The note receivable has a
12% interest rate per year, and is payable on December 31, each year. Both the
interest and the note will be paid in Pounds Sterling.
Also on October 1, Year 10, Jalby purchased E1,500,000 (E is Euro) of inventory
from a European company. This amount is payable on December 1, Year 11. There is
no interest on the liability.
Hedge accounting was not applied to either transaction. Jalby has a December 31st
year end.
Exchange Rates
October 1, Y10
December 31, Y10
Y10
Oct – Dec Y11
Dec 1, Y11
Dec 31, Y11
Y11
Spot Rate
Spot Rate
Average Rate
Average Rate
Spot Rate
Spot Rate
Average Rate
1E = CDN 2.4
1E = CDN 2.9
1E = CDN 2.3
1E = CDN 2.6
1E = CDN 2.7
1E = CDN 3.1
1E – CDN 3.0
$1 = £0.58
$1 = £0.56
$1 = £0.57
$1 = £0.61
$1 = £0.62
1$ = £0.60
1$ = £0.63
Required:
Prepare all the journal entries for Years 10 and 11 for the two transactions.
Question 2
Ziegler is a global company. On November 1, Year 4, Ziegler sold goods to DiBella
Company at a total cost of $425,000 FC (Foreign Currency units). At that time, the
spot rate was FC1 = $0.599. According to the contract, payment must be made on
March 1, Year 5. On November 2, Year 4, Ziegler entered into a forward contract
with the Royal Bank of North Bay at the 120-day forward rate of FC1 = $0.639.
Ziegler did not apply hedge accounting.
Ziegler’s fiscal year end is December 31st and on that date, the spot rate was FC1 =
0.612 and the forward rate was FC1 = $0.649. The payment from DiBella was
received on March 1, Year 5, when the spot rate was FC1 = $0.657.
Required:
1. Prepare the journal entries to record
a. The sale and the forward contract
b. Any adjustments required on December 31
c. The cash received in Year 4
2. Prepare Ziegler’s partial balance sheet on December 31, Year 4, that
shows the presentation of the receivable and the accounts associated
with the forward contract.
Question 3
Bond Corporation manufactures and sells goods for casinos. On July 1, Year 5,
MTCarlo contracted to purchase goods from Bond Corp in Europe at a price of
E700,000 (E is for Euro). The contract stipulated that the goods be delivered to
MTCarlo on October 31, Year 5. Payment is due from MTCarlo on the delivery date.
Only July 1, Year 5, MTCarlo arranged a forward contract to purchase E700,000 on
October 31, Year 5, at a rate of Euro 1 = $1.51. MTCarlo’s year end is September 30.
As per the contract, the goods were delivered on October 31, Year 5. On that date,
MTCarlo purchased E700,000 from the bank and delivered it to Bond.
Exchange rates were as follows:
July 1, Y5
September 30, Y5
October 31, Y5
Spot Rate
E1 = $1.42
E1 = $1.49
E1 = $1.50
Forward Rate
E1 = $1.51
E1 = $1.53
E1 = $1.50
Required:
a. Prepare the journal entries that MTCarlo should make to record the
events described in the narrative assuming that the forward contract is
designated as a cash flow hedge.
b. Prepare a partial trial balance of the accounts used as at September 30,
Year 5. Indicate how each would appear on the company’s financial
statements.
c. Prepare the journal entries that MTCarlo should make to record the
events described in the narrative assuming that the forward contract is
designated as a fair value hedge.
d. Prepare a partial trial balance of the accounts used as at September 30,
Year 5. Indicate how each would appear on the company’s financial
statements.

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