On November 1, 20X6, Smith Imports Inc. contracted to purchase teacups from England for 30,000. The teacups were to be delivered on January 30, 20X7, with payment due on March 1, 20X7. On November 1, 20X6, Smith entered into a 120-day forward contract to receive 30,000 pounds at a forward rate of 1 = $1.59. The forward contract was acquired to hedge the financial component of the foreign currency commitment.

1. Assume the company uses the forward rate in measuring the forward exchange contract and for measuring hedge effectiveness.

2. Spot and exchange rates follow:

   Date		Spot Rate		Forward Rate for March 1, 20X7
   November 1, 20X6		1 = $1.61		1 = $1.59
   December 31, 20X6		1 = 1.65		1 = 1.62
   January 30, 20X7		1 = 1.59		1 = 1.60
   March 1, 20X7		1 = 1.585		wh

Which of the following journal entries as of December 31, 20X6 would appropriately reflect the accounting for this hedge as a fair value hedge?

Dr. Foreign Currency Forward	900
Cr. Foreign Currency Transaction Gain		900

Dr. Foreign Currency Transaction Loss	900
Cr. Firm Commitment		900

Dr. Foreign Currency Forward	1800
Cr. Foreign Currency Transaction Gain		900
Cr. Other Comprehensive Income		900

Dr. Foreign Currency Forward	1800
Cr. Foreign Currency Transaction Gain		1800

Dr. Foreign Currency Transaction Loss	1800
Cr. Firm Commitment		1800

Dr. Foreign Currency Forward	900
Cr. Foreign Currency Transaction Gain		900