Maplehauff Inc. sells lumber to a number of clients around the world. On December 1, 2019 the company shipped some lumber to a client in the U.S. The selling price was established at US$600,000 with payment to be received on March 1, 2020. On December 3, 2019 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of US$1 = CDN$1.275. The forward contract was designated as a cash flow hedge of the amount due from the American customer. Maplehauff uses the net method to record the forward contract.
Maplehauff Inc. received the payment from its American client on March 1, 2020. The company's year-end is on December 31. The two-month forward rate for US dollars was CDN$1.255 on that date.
Selected spot rates were as follows:
$$1.2480\begin{array}{|l|l|}\hline \text { December } 1,2019: & \text { US } \$ 1=\text { CDN } \$ 1.2355 \\\hline \text { December } 3,2019: & \text { US } \$ 1=\text { CDN } \$ 1.2355 \\\hline \text { December } 31,2019 & \text { US } \$ 1=C D N \$ 1.2455 \\\hline \text { March } 1,2020: & \text { US } \$ 1=\text { CDN } \$ 1.2480\\\hline\end{array}$ Prepare the journal entries to record the receipt of the US$600,000 on March 1, 2020, assuming that Maplehauff Inc did not enter into a hedge transaction in December 2019.

Question

Maplehauff Inc. sells lumber to a number of clients around the world. On December 1, 2019 the company shipped some lumber to a client in the U.S. The selling price was established at US$600,000 with payment to be received on March 1, 2020. On December 3, 2019 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of US$1 = CDN$1.275. The forward contract was designated as a cash flow hedge of the amount due from the American customer. Maplehauff uses the net method to record the forward contract.
Maplehauff Inc. received the payment from its American client on March 1, 2020. The company's year-end is on December 31. The two-month forward rate for US dollars was CDN$1.255 on that date.
Selected spot rates were as follows:

$1.2480\begin{array}{|l|l|}\hline \text { December } 1,2019: & \text { US } \$ 1=\text { CDN } \$ 1.2355 \\\hline \text { December } 3,2019: & \text { US } \$ 1=\text { CDN } \$ 1.2355 \\\hline \text { December } 31,2019 & \text { US } \$ 1=C D N \$ 1.2455 \\\hline \text { March } 1,2020: & \text { US } \$ 1=\text { CDN } \$ 1.2480\\\hline\end{array}

Prepare the journal entries to record the receipt of the US$600,000 on March 1, 2020, assuming that Maplehauff Inc did not enter into a hedge transaction in December 2019.

Becky Velez · Accepted Answer

Final Answer :  Journal entries - March 1, 2020:  Cash - U.S. Dollars [ US  $ 600 , 000 × 1.248  March  1 $ 748 , 800  spotrate = CDN  $ 748 , 800  ]   Exchange Gain [ US  $ 600 , 000 × ( 1.248 − 1.2455 ) $ 1 , 500 =  CDN  $ 1 , 500 ]  Accounts Receivable [ US  $ 600 , 000 × 1.2455 $ 747 , 300  December  31  spot rate  =  CDN  $ 747 , 300 ]  Cash (CDN  $  )  $ 748 , 800  Cash - U.S. Dollars  $ 748 , 800  US  $ 600 , 000 × 1.248  spot rate  =  CDN  $ 748 , 800 ] \begin{array}{|l|r|r|}\hline 	ext { Cash - U.S. Dollars [ US } \$ 600,000 	imes 1.248 	ext { March } 1  &  \$ 748,800  &  \	ext { spotrate = CDN } \$ 748,800 	ext { ] }  &   &  \\hline 	ext { Exchange Gain [ US } \$ 600,000 	imes(1.248-1.2455)  &   &  \$ 1,500 \=	ext { CDN } \$ 1,500]  &   &  \\hline 	ext { Accounts Receivable [ US } \$ 600,000 	imes 1.2455  &   &  \$ 747,300 \	ext { December } 31 	ext { spot rate }=	ext { CDN } \$ 747,300]  &   &  \\hline 	ext { Cash (CDN } \$ 	ext { ) }  &  \$ 748,800  &  \\hline	ext { Cash - U.S. Dollars }  &   &  \$ 748,800 \\hline 	ext { US } \$ 600,000 	imes 1.248 	ext { spot rate }=	ext { CDN } \$ 748,800]  &   & \\hline\end{array}  Cash - U.S. Dollars [ US  $600 , 000 × 1.248  March  1  spotrate = CDN  $748 , 800  ]   Exchange Gain [ US  $600 , 000 × ( 1.248 − 1.2455 ) =  CDN  $1 , 500 ]  Accounts Receivable [ US  $600 , 000 × 1.2455  December  31  spot rate  =  CDN  $747 , 300 ]  Cash (CDN  $  )   Cash - U.S. Dollars   US  $600 , 000 × 1.248  spot rate  =  CDN  $748 , 800 ] ​ $748 , 800 $748 , 800 ​ $1 , 500 $747 , 300 $748 , 800 ​ ​

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