On March 1, 2010, Jacoby Ltd., a Canadian company, entered into a contract to buy supplies from Hornblower Co., a foreign company, for FC400,000. The contract requires Hornblower to deliver the supplies to Jacoby on July 15, 2010. Payment is required to be made in full upon delivery. On March 1, 2010, Jacoby entered into a forward contract with the bank to purchase FC400,000 on July 15, 2010. As promised, Hornblower delivered the goods on July 15th and payment was made in full. Jacoby has a June 30th year end date.

Spot Rate Forward Rate

March 1, 2010 FC1 = 4.80 CAD FC1 = 4.92 CAD

June 30, 2010 FC1 = 4.83 CAD FC1 = 4.88 CAD

July 15, 2010 FC1 = 4.85 CAD FC1 = 4.85 CAD

Prepare Jacoby Ltd.'s journal entries

a. assuming the forward contract is a cash flow hedge

b. assuming the forward contract is a fair value hedge