A US Company Reports a Forward Contract as a Cash Flow

Multiple Choice

A U.S. company reports a forward contract as a cash flow hedge of a forecasted purchase of merchandise, payment to be made in Hong Kong dollars. How is hedge accounting used in this situation?

A) Hedge accounting is used for both the forecasted purchase and the forward contract.
B) Hedge accounting is used for the forecasted purchase. The forward contract is reported normally.
C) Hedge accounting is used for the forward contract. The forecasted purchase is reported normally.
D) Normal accounting is used for both the forecasted purchase and the forward contract.