On November 1, 2019, a U Required
A

Essay

On November 1, 2019, a U.S. company thinks the euro will strengthen against the U.S. dollar, so it enters into a forward contract in the amount of €1,000,000, for delivery on March 15, 2020. This is a speculative contract. The company's accounting year ends December 31. The company closes the contract on February 1, 2020. Exchange rates are as follows ($/€):
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 15, 2020 Delivery }\end{array} \\\hline \text { Noyember 1, 2019 } & \$ 1.22 & \$ 1.23 \\\hline \text { December 31, 2019 } & 1.26 & 1.25 \\\hline \text { February 1, 2020 } & 1.27 & 1.28 \\\hline\end{array}$$ Required
a. Does the company enter a forward purchase or a forward sale contract? Explain.
b. Prepare the journal entries necessary on December 31, 2019 and February 1, 2020 to record the above events.