What is the amount of the liability to the bank recorded on the commitment date if the forward contract is recorded using the gross method?
A) CDN$686,700.
B) CDN$697,500.
C) CDN$701,400.
D)CDN$703,500.

Question

Quizplus · Accepted Answer

Using the gross method, both the liability and the asset are recorded at their full amounts. The liability in this case is the CDN$697,500 (CDN$1,050,000 ÷ 1.5) that will be paid in the future for the purchase of the US dollars. Therefore, the correct answer is option B.

What Is the Amount of the Liability to the Bank