On June 1, 20x5, a Victor Inc. placed an order for equipment with a United States

manufacturer. The price of the equipment is 500,000 USD. The equipment is expected to

be delivered on March 31, 20x6, at which time the payment is due. In order to protect

itself from fluctuations in interest rates, the company entered into a forward contract to

purchase 500,000USD on March 31, 20x6, at 1 USD = $1.36. At December 31, 20x5, the

forward rate for a three-month forward contract ending on March 31, 20x6, was 1 USD =

$1.41 and the spot rate was 1 USD = $1.40. No entries were made relative to this

contract. The company made a decision on March 31, 20x5 to use hedge accounting and

wishes to classify it as a cash flow hedge.

Required - Prepare the journal entry relating to this transaction at December 31, 20x5.