On Dec. 1, 2020, Barb's Ancestry signs a contract to purchase 12,000 of inventory on Jan. 30, 2021, from a European-based company with payment due March 31st. Also on Dec. 1, 2020, Barb's Ancestry enters into a forward contract to purchase 12,000 on March 31, 2021, at today's forward rate for March 31, 2021. You can see the table of spot and forward rates below.

a) Assume that this forward contract is a fair value hedge of this purchase that will happen on Jan. 30, 2021. Please give Barb's Ancestry's journal entries regarding both the inventory (where applicable) and this contract on the purchase date, the fiscal year-end on Dec. 31, 2020, the purchase date on Jan. 30, 2021, and the resolution date on March 31, 2021.

Purchase of forward contract on Dec. 1 (Barb's Ancestry will track both the receivable and payable related to this contract, not net them together as one account):

Derivative at fiscal Year-end on Dec. 31, 2020:

Firm Commitment at year-end on Dec. 31, 2020:

Update of derivative value on purchase date, Jan 30, 2021:

Firm Commitment on purchase date, Jan. 30, 2021:

Purchase of Inventory on Jan. 30, 2021:

Payment to the broker on March 31, 2021:

Collection of receivable from the broker on March 31, 2021:

Payment to supplier on March 31, 2021:

b) Now assume the same information as in part a, but the forward contract is classified as a cash flow hedge. Please give Barb's Ancestry's journal entries regarding both the inventory (where applicable) and this contract on the purchase date, the fiscal year-end on Dec. 31, 2020, the purchase date on Jan. 30, 2021, and the resolution date on March 31, 2021.

Purchase of forward contract on Dec 1 (Barb's Ancestry will track both the receivable and payable related to this contract, not net them together as one account):

Derivative at fiscal Year-end on Dec. 31, 2020:

Update of derivative value on purchase date, Jan 30, 2021:

Purchase of Inventory on Jan. 30, 2021:

Payment to the broker on March 31, 2021:

Collection of receivable from the broker on March 31, 2021:

Payment to supplier on March 31, 2021:

Effect of cash flow hedge on NI on March 31, 2021:

Forward Rate Date Spot Rate for 3/31/2021 12/1/2020 1.140 1.100 12/31/2020 1.100 1.050 3/31/2021 1.080 Forward Rate Date Spot Rate for 3/31/2021 12/1/2020 1.140 1.100 12/31/2020 1.100 1.050 3/31/2021 1.080