Accounting for forward foreign exchange contract as a cash flow hedge. On October 1, 2008, Riddle Corporation purchases equipment from a supplier in France on account at a purchase price of €40,000 and denominates the transaction in euros. Biddle Corporation must pay the €40,000 on March 31, 2009, To protect its cash flows, Biddle Corporation purchases a forward foreign exchange contract on October 1, 2008, for €40,000 at a forward foreign exchange rate for settlement on March 31, 2009, of €1 = $1.32. Biddle Corporation designates the forward foreign exchange contract as a cash flow hedge. The forward foreign exchange rate on December 31, 2008, for settlement on March 31, 2009, is €1 = $1.35, and the actual exchange rate on March 31, 2009, is €1 = $1.40. Ignore discounting of cash flows in this exercise. The following summarizes this information:

a. What is the fair value of the foreign exchange contract on December 31, 2008? Is the amount an asset or a liability?
b. What amount would Biddle Corporation report on its December 31, 2008, balance sheet for its Note Payable to the supplier?
c. What is the fair value of the foreign exchange contract on March 31 2009, just before settling the transaction?
d. Give the journal entry on March 31, 2009, to pay cash to the supplier.
e. Give the journal entry on March 31, 2009, to settle the forward foreign exchangecontract.

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Type of Exchange Equivalent Amount in Euros Exchange Rate U.S. Dollar Amount Date October 1, 2008..... Rate Forward Rate for March 31, 2009, €1 - $1.32 €40,000 $52,800 Settlement December 31, 2008... Forward Rate for March 31, 2009, €1 - $1.35 €40,000 $54,000 Settlement March 31, 2009...... Actual €60,000 €1 - $1.40 $5,000