On December 1, 20X1, Micro World Inc. entered into a 120-day forward contract to purchase 100,000 Australian dollars (AS). Micro World's fiscal year ends on December 31. The direct exchange rates follow:

Date

December 1, 20X1 December 31, 20X1 January 30, 20X2 March 31, 20X2

Spot Rate $0.600 0.610 0.608 0.602

Forward Rate for March 31, 20X2 $0.609 0.612 0.605

Required Prepare all journal entries for Micro World Inc. for the following independent situations:

a.The forward contract was to manage the foreign currency risks from the purchase of furniture for A$100,000 on December 1, 20X1, with payment due on March 31, 20X2. The forward contract is not designated as a hedge.

b. The forward contract was to hedge a firm commitment agreement made on December 1, 20X1, to purchase furniture on January 30, with payment due on March 31, 20X2. The derivative is designated as a fair value hedge.

C. The forward contract was for speculative purposes only.