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On December 10, Year 3, a Canadian company, Chuk Inc., arranged to purchase inventory from a supplier in Germany for 500,000. Payment is due one month after delivery of the merchandise which is scheduled to be delivered on February 10, Year 4. On December 15, Year 3, Chuk Inc. entered into a forward purchase contract with RBC to exchange 500,000 on March 10, Year 4. Year end is December 31 Relevant exchange rates are as follows for 1: Spot rates $ Forward rates $ December 10 Yr 3 1.500 1.520 December 15 Yr 3 1.530 1.560 December 31 Yr 3 1.540 1.570 February 10 Yr 4 1.525 1.552 March 10 Yr 4 1.539 Required: Must show all work for full marks (a) Assume Chuk Inc. elects to account for the forward contract as a cash flow hedge, prepare the memorandums and journal entries for Year 3 and Year 4. Show supporting calculations. (10 marks). (b) Prepare a partial Comprehensive Income Statement and Balance Sheet for December 31, Year 3 to indicate how each account would appear on the companys financial statements (show headings). (3 marks) (c) Calculate the discount or premium (state which one) and explain (along with dollar values) how the net gain or loss (state which one) is allocated. (4 marks). (d) Assume Chuk Inc. elects not to use hedge accounting in accounting for the forward contract, prepare only the journal entries that would be different from part (a). Also explain the impact on the allocation of the premium/discount. (4 marks)

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