Olive Company is a distributor of olive oil and other gourmet products in Vancouver, B.C. The majority of its specialty items are imported from a supplier in Italy. Olive Company ordered a large supply of oil on December 1, 2019 for a delivery date of January 15, 2020. The terms of payment were Euro () 140,000 on February 1, 2020.

Upon placing the order on December 1, 2019, Olive Company immediately entered into a forward contract with its bank to purchase 140,000 on February 1, 2020 at the forward rate of 1 = C$1.39. Olive has a December 31 year end and the following exchange rates were noted:

Spot Rates Forward Rates

01-Dec-19 1 = C$1.45 1 = C$1.39

31-Dec-19 1 = C$1.38 1 = C$1.35

15-Jan-20 1 = C$1.40 1 = C$1.41

01-Feb-20 1 = C$1.47 1 = C$1.47

REQUIRED: (20 marks)

1. Assume that this transaction is to be accounted for as a cash flow hedge. Provide the journal entries required by Olive Company for the following dates: (14 marks)

a. December 1, 2019

b. December 31, 2019

c. January 15, 2020

d. February 1, 2020

2. Assume that Olive Company will account for this transaction as a fair value hedge. Provide the journal entries required by Olive Company for December 31, 2019. (2 marks)