What is the required adjustment to ABC's accounts receivable at year-end as a result of this transaction?
ABC Inc. sells thermal compressors throughout the world. On January 1, 2016, the company sold 500 compressors to an American supplier at a total cost US$60,000 when the spot rate was US$1 = CDN$1.1750. Payment on the invoice was due by May 1, 2016. ABC entered into a 4-month hedge with its bank at a forward rate of CDN$1.20 on January 2, 2016. The forward contract was declared to be a fair value hedge of the fair value of the receivable from the American customer. ABC's year-end is on January 31, and on that date in 2016, the spot rate in effect was CDN$1.1825 and the forward rate to May 1, 2016 was CDN$1.1950.
ABC received payment from its supplier on May 1, 2016 when the spot rate was US$1 = CDN$1.1975.
A) Nil.
B) CDN$900 increase.
C) CDN$450 increase.
D) CDN$450 decrease.
C) CDN$450 increase.
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