b6-2

Forward exchange contract designated as a fair value hedge of a foreign-currency-denominated firm commitment to sell inventory, strengthening $US

Our U.S.-based company enters into a firm commitment with Ireland-based retailer on December 5, 2018. The firm commitment requires our company to sell 30,000 units of an inventory item costing 14.00 each to the Irish company. Our company is contractually committed to ship the inventory (i.e., title transfers) on March 5, 2019, with payment in Euros on the same date. Our company does recurring business with the Irish company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on December 5, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on March 5, 2019) to mitigate the risk of exchange rate fluctuation. Our companys functional currency is the U.S. dollar and our forward exchange contract qualifies as a fair value hedge. The relevant exchange rates and related balances for the period from December 5, 2018, to March 5, 2019, are as follows:

				DerivativeForward
Date	Spot Rate ($US = 1)	Sale Transaction	Forward Ratea ($US = 1)	FV Asset (Liability)b	Change in FV
December 5, 2018	1.25		1.23
December 31, 2018	1.22		1.20	$12,600	$12,600
March 5, 2019	1.18	$495,600	1.18	21,000	8,400

^a For settlement on March 5, 2019

^b Ignore discounting in the computation of fair values.

a. Prepare the journal entries to record the sale and all adjustments required for the firm commitment and forward contract at December 5, 2018, December 31, 2018, and March 5, 2019. Note: If no entry is required, select "No entry" as your answers under Description and leave the debit and credit answers blank (zero). Hedged Transaction

Date	Description	Debit	Credit
12/5/18	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
12/31/18	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
3/5/19	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	To record sale of inventory.
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	To record change in value.
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	To reclassify firm commitment.

FV Hedge

Date	Description	Debit	Credit
12/5/18	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
12/31/18	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
3/5/19	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	To record change in value.
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	AnswerAccounts payableAccounts receivableCashCost of goods soldForward contract (asset)Forward contract (liability)Gain (loss) on AFS securityHedged firm commitment (asset)Hedged firm commitment (liability)Investment in AFS SecuritySalesNo entry	Answer	Answer
	To record the net settlement.

b. Reconcile to the forward rate at the forward contracts inception the net cash received for both the sale of goods and the settlement of the forward-contract derivative. Net cash received for sale of goods and the settlement of the forward contract derivative is: $Answer

c. What amount of sales was recognized in the quarter ending December 31, 2018? Note: Do not use a negative sign with any of your answers below. $Answer

What amount of sales was recognized in the quarter ending March 31, 2019? $Answer

What is the total amount of sales recognized across the quarters ending December 31, 2018, and March 31, 2019? $Answer

This is ALL of the info that comes with the question