Problem 2. A U.S. company purchases merchandise from a Hong Kong supplier on a regular basis. The following events occur October 1, 2017: The company signed a forward contract to purchase HK$1,000,000 for delivery on May 1 2018, in December 1, 2017: The company issued a purchase order for HKS1,000,000 in merchandise from the supplier. March 1, 2018: The company took delivery of the merchandise. May 1,2018: The company closed the forward contract and paid the supplier May 31,2018: The company sold the merchandise to a U.S. customer for $200,000 The company's accounting year ends December 31. Exchange rates (S/HKS) are as follows: anticipation of an expected payment of HKS for a forecasted merchandise purchase. Spot rate Forward rate for delivery 5/1/2018 October 1, 2017 December 1, 2017 $0.125 0.127 December 31, 2017 0.128 0.131 0.132 S0.127 0.1285 0.131 0.1317 0.132 March 1, 2018 May 1, 2018 Required: Prepare the journal entries to record the above transactions, including necessary adjusting entries. Assume the hedge qualifies for hedge accounting. Problem 2. A U.S. company purchases merchandise from a Hong Kong supplier on a regular basis. The following events occur October 1, 2017: The company signed a forward contract to purchase HK$1,000,000 for delivery on May 1 2018, in December 1, 2017: The company issued a purchase order for HKS1,000,000 in merchandise from the supplier. March 1, 2018: The company took delivery of the merchandise. May 1,2018: The company closed the forward contract and paid the supplier May 31,2018: The company sold the merchandise to a U.S. customer for $200,000 The company's accounting year ends December 31. Exchange rates (S/HKS) are as follows: anticipation of an expected payment of HKS for a forecasted merchandise purchase. Spot rate Forward rate for delivery 5/1/2018 October 1, 2017 December 1, 2017 $0.125 0.127 December 31, 2017 0.128 0.131 0.132 S0.127 0.1285 0.131 0.1317 0.132 March 1, 2018 May 1, 2018 Required: Prepare the journal entries to record the above transactions, including necessary adjusting entries. Assume the hedge qualifies for hedge accounting