On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 200,000 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 200,000 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. dollarYuan exchange rates apply:

As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 200,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021.

1. Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency forward contract and import purchase.
2. What is the impact on net income in 2020?
3. What is the impact on net income in 2021?

• 1 Record the forecasted sale and the six-month forward contract to buy 200,000 yuan.

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

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

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

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

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

• 7 Record the purchase of inventory.

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

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

Please answer questions.

Date November 1, 2020 December 31, 2020 April 30, 2021 Spot Rate $ 0.31 0.30 0.28 Forward Rate (to April 30, 2021) $0.295 0.270 N/A Reg A Req B and C Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency forward contract and import purchase. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required the first account field.) View transaction list View journal entry worksheet X No Debit Credit Date 11/01/2020 General Journal No journal entry required 1 2 12/31/2020 Other comprehensive income Forward contract 3 12/31/2020 Cost of goods sold Other comprehensive income 4 04/30/2021 Forward contract Other comprehensive income 5 04/30/2021 Cost of goods sold Other comprehensive income 6 04/30/2021 Forward contract Foreign currency (Yuan) 7 04/30/2021 Inventory Foreign currency (Yuan) 8 04/30/2021 Cost of goods sold Inventory 9 04/30/2021 No journal entry required ReqA Req B and C b. What is the impact on net income in 2020? c. What is the impact on net income in 2021? (Negative amounts should be entered with a minus sign. Do not round intermediate calculations.) b. Impact on net income in 2020 Impact on net income in 2021 C. Date November 1, 2020 December 31, 2020 April 30, 2021 Spot Rate $ 0.31 0.30 0.28 Forward Rate (to April 30, 2021) $0.295 0.270 N/A Reg A Req B and C Prepare all journal entries, including December 31 adjusting entries, to record the foreign currency forward contract and import purchase. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required the first account field.) View transaction list View journal entry worksheet X No Debit Credit Date 11/01/2020 General Journal No journal entry required 1 2 12/31/2020 Other comprehensive income Forward contract 3 12/31/2020 Cost of goods sold Other comprehensive income 4 04/30/2021 Forward contract Other comprehensive income 5 04/30/2021 Cost of goods sold Other comprehensive income 6 04/30/2021 Forward contract Foreign currency (Yuan) 7 04/30/2021 Inventory Foreign currency (Yuan) 8 04/30/2021 Cost of goods sold Inventory 9 04/30/2021 No journal entry required ReqA Req B and C b. What is the impact on net income in 2020? c. What is the impact on net income in 2021? (Negative amounts should be entered with a minus sign. Do not round intermediate calculations.) b. Impact on net income in 2020 Impact on net income in 2021 C