On March 1, 2021, a U.S. firm contracts to sell equipment to a foreign customer for 10,090,000 JPY. The equipment is expected to cost $60,000 to manufacture and will be delivered one year later on March 1, 2022. Thus, the transaction date and the settlement date are both March 1, 2022. The contract is considered a firm commitment.

On March 1, 2021, the U.S. firm enters into a forward contract to sell 1,090,000 JPY in 12 months at the forward rate of USD/JPY = 109. The USD/JPY spot rates and the USD/JPY forward rates to purchase U.S. dollars on March 1, 2022, are as follows:

Date	USD/JPY Spot Price	USD/JPY March Future Price
1-Mar-21	108	109
31-Dec-21	115	116
1-Mar-22	114	114

1. What method should be used to account for the derivative (Standalone, Fair Value hedge, or Cash Flow Hedge)?

2. Prepare the relevant entries for the following dates:

a) March 1, 2021

b) December 31, 2021

c) March 1, 2022

3. Explain the effect of the above transactions on the firms profitability.