On December 1, 2021, a U.S. firm purchased inventory for 500,000 euros payable on March 1, 2022 (i.e., the transaction is denominated in euros). The firm also entered into a futures contract to hedge their FX exposure related to the upcoming payment.

The firm's fiscal year-end is December 31. The EUR/USD spot rates and the EUR/USD forward rates to purchase euros on March 1, 2022, are as follows:

Date	EUR/USD Spot Price	EUR/USD March Future Price
1-Dec-21	$1.13	$1.14
31-Dec-21	$1.14	$1.15
1-Mar-22	$1.11	$1.11

1. Prepare the entries related to the purchase of inventory and the futures contracts at the following dates:

a) December 1, 2021 - Transaction Date

b) December 31, 2021 - Balance Sheet Date

c) March 1, 2022- Settlement Date

2. Explain the net effect of the futures contract on net income over the life of the contract.