Merele Corp., based in the US, sold inventory for 500,000 Euro to Hacker Co. on December 2,

2008. The customer will pay March 1, 2009, payable in Euro. On 12/2/2008, Merele entered

into a 90 -day forward contract to hedge the receivable from Hacker. The following exchange

rates apply:

12/2/08 12/31/08 3/1/09

Spot Rate $1.70 $1.705 $1.71

Forward Rate

For 3/1/09 $1.68 $1.69

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a) Assume the Forward was designated as a cash flow hedge and Merele's incremental borrowing

rate is 6% giving a 60- day present value factor of .9901. Give all entries related to these

transactions and date the entries.

b) Assume the Forward was designated as a fair value hedge. Give all entries for these

transactions and date the entries.