On October 1, 2013, Jarvis Co. sold inventory to a customer in a foreign country, denominated in 100,000 local currency units (LCU). Collection is expected in four months. On October 1, 2013, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2014) and receive $78,000 in U.S. dollars. The spot and forward rates for the LCU were as follows:

date rate description exchange rate

october 1,2013 spot rate $.83=1LCU

December 31,2013 spot rate $.85=1LCU

1-Month Forward rate $.80=LCU

February 1,2014 spot rate $.86=LCU

The company's borrowing rate is 12%. The present value factor for one month is .9901.

Any discount or premium on the contract is amortized using the straight-line method.

Assuming this is a fair value hedge; prepare journal entries for this sales transaction and forward contract.

Thank you for your help.