Edsel Inc. is a U.S.-based manufacturer of auto parts and related supplies in the classic car market. On November 1, Year 1, Edsel sold and shipped auto parts to a customer in Canada for a price of 300,000 Canadian Dollars (CAD). Payment is to be received on January 30, Year 2. On the date of sale, Edsel also entered into a three-month forward contract to sell CAD 300,000. The forward contract is properly designated as a cash flow hedge of a foreign currency receivable. Edsels incremental borrowing rate is 12% (1% per month). The present value factor for one month at an incremental borrowing rate of 12% is .99010. Relevant exchange rates are as follows:

Spot Forward Rate

Date Rate (to January 30, Year 2)

November 1, Year 1. . . . . . . . . . . . . . $1.1584 $1.1576

December 31, Year 1. . . . . . . . . . . . . . 1.2597 1.2591

January 30, Year 2. . . . . . . . . . . . . . . . 1.2456 1.2456

Prepare all necessary journal entries to account for the sale and foreign currency forward contract. Assume that Edsel Inc. closes the books and prepares financial statements on December 31, Year 1.

Where appropriate, round to 2 decimal points.

Based upon your work in No. 2 above, what is the impact on net income for each year, and in total, due to the foreign currency aspects of this transaction?