Question

Our firm purchased equipment for 200,000 Artemedal dollars (AD$) on December 1, 2016. Our year end...

Our firm purchased equipment for 200,000 Artemedal dollars (AD$) on December 1, 2016. Our year end is December 31, and the payable is due on February 28, 2017. On December 1, 2016, we entered into a forward exchange contract with the bank to provide us with 200,000 ADs on February 28, 2017. This is classified as a fair value hedge.  

The following rates were in effect:

Forward Rates:  

December 1, 2016; 90 day forward rate AD$1 = CDN$ .62

December 31, 2016; 60 day forward rate AD$1 = CDN$ .60

Spot rates:  

December 1, 2016 AD$1 = CDN$ .64

December 31, 2016 AD$1 = CDN$ .61

February 28, 2017 AD$1 = CDN$ .59

Required:  

Provide all the necessary journal entries to record both the account payable and the hedge.

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