Forward exchange contract designated as a fair value hedge of foreign currency risk in a foreign- currency-denominated available-for-sale debt security, weakening $US On Noember 1, 2018, our company purchased a foreign-currency-denominated AFS debt security for 800,000. Our company plans to sell the security in three months (i.e., on January 31). The spot rate on the date the security is purchased is $1.31:1 and the company is concerned about the prospect of a strengthening $US that will reduce the $US fair value of the foreign-currency-denominated security. To hedge this risk, the company purchases a forward contract to sell 800,000 for $1.34:1 (the current forward rate) on January 31, 2019. Our U.S.-based company's functional currency is the $US. The spot and forward exchange rates and their effects on the recorded values of AFS security and the forward-contract derivative are summarized in the following table: FC AFS Security Derivative-Forward Forward Spot Rate Carrying Change in Ratea FV Asset Change Date ($US = 1) Value Carry Val. (SUS = 1) (Liability in FV November 1, 2018 1.31 $1,048,000 1.34 December 31, 2018 1.33 1,064,000 $16,000 $(8,000) $(8,000) January 31, 2019 1,088,000 24,000 1.36 (16,000) (8,000) 1.35 1.36 For settlement on January 31, 2019 Ignore discounting in the computation of fair values. a. Prepare the journal entries to record the purchase and all adjustments required for the AFS security and the forward contract at November 1, 2018, December 31, 2018, and January 31, 2019. Hedged Transaction Date Description Debit Credit 11/1/18 0 0 0 0 > 12/31/18 0 > 0 0 0 0 1/31/19 0 . 0 0 To record change in $US value. 0 0 0 0 To record receipt. FV Hedge Description Debit Credit Date 11/1/18 > 0 0 0 12/31/18 0 0 > 0 0 > 1/31/19 0 0 0 To record change in value. 0 0 0 0 To record the net settlement. b. Reconcile to the forward rate at the forward contract's inception the net cash received for both the sale of the AFS security and the settlement of the forward-contract derivative. Net cash received for sale of the AFS security and settlement of the forward contract derivative is: $ 0 Forward exchange contract designated as a fair value hedge of foreign currency risk in a foreign- currency-denominated available-for-sale debt security, weakening $US On Noember 1, 2018, our company purchased a foreign-currency-denominated AFS debt security for 800,000. Our company plans to sell the security in three months (i.e., on January 31). The spot rate on the date the security is purchased is $1.31:1 and the company is concerned about the prospect of a strengthening $US that will reduce the $US fair value of the foreign-currency-denominated security. To hedge this risk, the company purchases a forward contract to sell 800,000 for $1.34:1 (the current forward rate) on January 31, 2019. Our U.S.-based company's functional currency is the $US. The spot and forward exchange rates and their effects on the recorded values of AFS security and the forward-contract derivative are summarized in the following table: FC AFS Security Derivative-Forward Forward Spot Rate Carrying Change in Ratea FV Asset Change Date ($US = 1) Value Carry Val. (SUS = 1) (Liability in FV November 1, 2018 1.31 $1,048,000 1.34 December 31, 2018 1.33 1,064,000 $16,000 $(8,000) $(8,000) January 31, 2019 1,088,000 24,000 1.36 (16,000) (8,000) 1.35 1.36 For settlement on January 31, 2019 Ignore discounting in the computation of fair values. a. Prepare the journal entries to record the purchase and all adjustments required for the AFS security and the forward contract at November 1, 2018, December 31, 2018, and January 31, 2019. Hedged Transaction Date Description Debit Credit 11/1/18 0 0 0 0 > 12/31/18 0 > 0 0 0 0 1/31/19 0 . 0 0 To record change in $US value. 0 0 0 0 To record receipt. FV Hedge Description Debit Credit Date 11/1/18 > 0 0 0 12/31/18 0 0 > 0 0 > 1/31/19 0 0 0 To record change in value. 0 0 0 0 To record the net settlement. b. Reconcile to the forward rate at the forward contract's inception the net cash received for both the sale of the AFS security and the settlement of the forward-contract derivative. Net cash received for sale of the AFS security and settlement of the forward contract derivative is: $ 0