Question #2

On October 15, 2021, Fast Fashion Ltd. (FF) entered a forward contract to purchase 100,000 at $130,000, good until February 1, 2022 in anticipation of the payment for the equipment purchased in France. On December 31, 2021, FFs fiscal year end, the spot rate is 1 = $1.42 and the forward is valued at $12,000. On February 1, 2022, the contract was executed when the spot rate is 1 = $1.44.

Instructions

Prepare the journal entries to record the adjusting entries on December 31, 2021 and February 1, 2022, assuming the hedge accounting was elected and the forward is a cash flow hedge.

Would you recommend FF to elect hedge accounting? Why or why not?