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 entries on December 31, 2021 and February 1, 2022, assuming the hedge accounting was not elected.

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?