Brandlin Company of Anaheim, California, purchases materials from a foreign supplier on December 1, 2017, with payment of 34,000 korunas to be made on March 1, 2018. The materials are consumed immediately and recognized as cost of goods sold at the date of purchase. On December 1, 2017, Brandlin enters into a forward contract to purchase 34,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:

Date	Spot Rate			Forward Rate (to March 1, 2018)
December 1, 2017	$	5.20		$	5.275
December 31, 2017		5.30			5.400
March 1, 2018		5.45			N/A

Brandlins incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at December 31.

1. b-1. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency payable, prepare journal entries for these transactions in U.S. dollars.

   1. Record the purchase of materials.

   2. Record the forward contract.

   3. Record the entry for changes in the exchange rate.

   4. Record the change in the fair value of the forward contract.

   5. Record the gain or loss on the forward contract.

   6. Record the allocation of the premium or discount.

   7. Record the entry for changes in the exchange rate.

   8. Record the entry to adjust the carrying value of the forward contract to its current fair value.

   9. Record the gain or loss on the forward contract.

   10. Record the allocation of the premium or discount.

   11. Record the settlement of the forward contract.

   12. Record the payment of korunas to the foreign supplier.

2. b-2. Assuming that the purchased parts became a part of the cost of goods sold in 2017, what is the impact on net income in 2017 and in 2018?

3. b-3. What is the impact on net income over the two accounting periods?