On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 290,000 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 290,000 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:

Date	Spot Rate			Forward Rate (to April 30, 2021)
November 1, 2020	$	0.40		$	0.385
December 31, 2020		0.39			0.360
April 30, 2021		0.37			N/A

As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 290,000 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?

REQ A

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

Journal Entries Please!

1. 11/01/2020 - Record the forecasted sale and the six-month forward contract to buy 290,000 yuan.
2. 12/31/2020 - Record the forward contract at its fair value as an asset or liability.
3. 12/31/2020 - Record the entry to amortize the forward contract premium or discount.
4. 4/30/2021 - Record the entry to adjust the forward contract asset or liability to its fair value.
5. 4/30/2021 - Record the entry to amortize the forward contract premium or discount.
6. 4/30/2021 - Record the settlement of the forward contract and close the forward contract asset or liability account
7. 4/30/2021 - Record the purchase of inventory.
8. 4/30/2021 - Record the entry to transfer the cost of inventory to cost of goods sold.
9. 4/30/2021 - Record the entry to close accumulated other comprehensive income.

REQ B . What is the impact on net income in 2020? REQ C . What is the impact on net income in 2021?