On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 130,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 130,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar-Yuan exchange rates apply:

Date Spot Rate Forward Rate (April 30,2021)

November 1, 2020 0.24 0.225

December 31, 2020 0.23 0.200

April 30, 2021 0.21 N/A

Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency forward contract and import purchase.

1.Record the forecasted sale and the six-month forward contract to buy 130,000 yuan.

Nov 1

2.Record the forward contract at its fair value as an asset or liability.

Dec 31

3. Record the entry to amortize the forward contract premium or discount.

Dec 31

4. Record the entry to adjust the forward contract asset or liability to its fair value.

April 30

5.Record the entry to amortize the forward contract premium or discount.

April 30

6. Record the settlement of the forward contract and close the forward contract asset or liability account.

April 30

7.Record the purchase of inventory.

April 30

8.Record the entry to transfer the cost of inventory to cost of goods sold.

April 30

9.Record the entry to close accumulated other comprehensive income.

April 30

b. What is the impact on net income in 2020?

Impact on net income in 2020 is...

c. What is the impact on net income in 2021?

Impact on net income in 2021 is...