On October 1, 2015, Jarvis Co. sold inventory to a customer in Spain for 100,00 Euros. Collection is expected in four months. On October 1, 2015, a forward exchange co tract was negotiated.

Problem 1 (23 points): On October 1, 2015, Jarvis Co. sold inventory to a customer in Spain for 100,000 Euros. Collection is expected in four months. On October 1, 2015, a forward exchange contract was negotiated with Long Island Bank, when the spot exchange rate was $0.83 USD/Euro, whereby Jarvis Co. agreed to remit the 100,000 Euros in four months (on February 1, 2016) to the Bank and receive the forward rate of $0.78 USD/Euro. Jarvis Co. has a December 31 year-end. The spot and forward rates throughout the four months were as follows: Spot Rate Forward Rate (to 2/1/16) October 1, 2015 December 31, 2015 February 1, 2016 $0.83 $0.78 $0.85 $0.80 $0.86 $0.86 The company's borrowing rate is 12% and the applicable present value factor applicable is 0.9901. Round all calculations to the nearest whole dollar (i.e., $25.10- $25) as necessary. Any discount or premium is amortized using the straight-line method. Assuming this is a cash flow hedge of a forward contract, (1) prepare journal entries on 10/1/2015, 12/31/2015, and 2/1/2016. Label your journal entries by date. For 12/31/2015-answer the three questions in addition to the journal entry. 12/31/2015 Questions to Answer 2 Points: What is the balance in the forward contract at 12/31/2015 2 Points: What is the balance in AOCI at 12/31/2015 1 Point: What is the effect of the transaction on net income for the period ended 12/31/2015