A US Company Enters a Forward Contract on October 31, 2020

Essay

A U.S. company enters a forward contract on October 31, 2020 to hedge a forecasted sale of merchandise to a Canadian customer for C$100,000 on March 31, 2021. On March 31 it delivers the merchandise to the customer, receives payment of C$100,000, and uses the forward contract to exchange C$ for U.S. dollars. The company's accounting year ends December 31. Exchange rates ($/C$) are as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 31, 2021 Delivery }\end{array} \\\hline \text { October 31, 2020 } & \$ 0.772 & \$ 0.770 \\\hline \text { December 31, 2020 } & 0.769 & 0.766 \\\hline \text { March 31, 2021 } & 0.760 & 0.760 \\\hline\end{array}$$ Required
a. Prepare the journal entries necessary to record the above events, including year-end adjustments, if the forward qualifies as a cash flow hedge of the forecasted sale.
b. Prepare the journal entries necessary to record the above events, including year-end adjustments, if the forward does not qualify for hedge accounting.