Cash flow hedges, Fair Value hedges, and Speculative derivatives:

Bat, a U.S. corporation, forecasts that it will need to buy toffee from Ram of Scotland for 1,000,000 British pounds. The purchase is likely to occur on 3/1/20. Bat will use the toffee to produce its carnival cookies that are sold in April each year.

On 12/2/19, Bat enters into a forward contract to buy 1,000,000 pounds from FC Speculators for $1.30 per pound with settlement on March 1, 2020. Bat and FC Speculators are 12/31 year-end companies. The toffee was purchased from Ram on 3/1/20 for 1,000,000 pounds. The forward contract was settled on 3/1/20. And Bat pays for the toffee in pounds on 3/1/20.

The following are the exchange rates for pounds:

Note: The forward rates quoted are for forward contracts entered on those dates and settling on 3/1/20.

Date	Spot	Forward
12/2/19	$1.30	$1.31
12/31/19	$1.33	$1.35
3/1/20	$1.34	-

On 4/1/20, Bat sells its carnival cookie production for $2,000,000 and had incurred other costs related to the production for $300,000.

From Bats perspective:

a. What is the forward contracts value on Bats books on 12/2/19?

b. What is (are) the entry(ies) that Bat makes on 12/31/19?

c. What is the inventory amount on Bats books after purchase on 3/1/20?

d. How much cash was paid for foreign currency on 3/1/20?

e. What is the balance in Cost of Goods Sold on 4/1/20 after all entries are made?

f. What is Gross profit on 4/1/20 sale if no forward contract had been entered into?

g. What is the Gross profit on 4/1/20 sale with the hedge contract?