Instructions: Read the case below and answer the 3 questions. Do not rewrite the case or rewrite the questions. Simply number your responses to correspond with the questions.

Bellows Corp is a US manufacturer of auto parts with branch operations in Spain. On January 1, 2021wishes to use a foreign currency option to hedge 20,000,000 euro-denominated accounts payable that are due in two years. Jordan plans to use fair value hedge accounting. Over the subsequent 4 quarters, the following are the changes in the fair value of the payable and the fair value of the foreign currency option hedge.

Quarter ended March 31, 2021: Euro payable increases by $400,000

Option hedge declines by $350,000

Quarter ended June 30, 2021: Euro payable decreases by $500,000

Option hedge increases by $400,000

Quarter ended Sept. 30, 2021: Euro payable decreases by $800,000

Option hedge increases by $700,000

Quarter ended Dec. 31, 2021: Euro payable increases by $100,000

Option hedge increases by $90,000

Answer the following questions:

1. . Structure the appropriate fair value hedge using an FX option. Your answer must state whether Bellows is purchasing or selling an option, what is the expiration date of the option is well as whether it is an option to purchase euros and sell US dollars or an option to purchase US dollars and sell euros.
2. . Identify by codification reference, e.g., xxx-xx-xx-xx, copy/paste, and AND HIGHLIGHT the appropriate section(s) of the FASB codification that describe the alternate criteria that can be used to determine on December 31, 2021, whether or not this has been an effective fair value hedge

3. Using one of the FASB alternate criteria in your answer to #2 above, state your conclusion as to whether this is an effective hedge for each quarter and for the full year. You must include well-labeled computations to support your conclusion.