Assume that all of the facts in Problem 1 remain unchanged except that MEl uses hedge accounting. Also, assume that the forward element and spot elements on the forward contract are accounted for separately.

Required
(a) Prepare the journal entries for the same items as in part (a) of Problem 1 assuming that MEl designates the forward contract as a cash flow hedge.

(b) Prepare the journal entries for the same items as in part (a) of Problem 1 assuming that MEl designates the forward contract as a fair value hedge.

(c) Explain the similarities and differences in the journal entries between the cash flow hedge and the fair value hedge.