Hedge of an Unrecognized Foreign Currency Commitment - Fair Value Hedge Citron Company is a U.S.-based citrus grower. On October 1, 2008, the company entered into a contract to ship 25,000 boxes of grapefruit on January 28 to Japan. Payment of 50,100,000 yen is to be received on March 29, 2009. On October 1, Citron also entered into a forward contract to sell 50,100,000 yen on March 29 at the forward rate of $.007412. The forward contract is considered a hedge of the unrecognized foreign currency commitment. The direct exchange rate and forward rate for the yen were as follows:

Required:
A. Prepare the necessary journal entries to record the following transactions and events:
Oct. 1 Entered into the contract to sell the grapefruit and negotiated the forward contract.
Dec. 31 Fiscal year-end of Citron Company.
Jan. 28 The grapefruit were shipped FOB shipping point. The grapefruit cost Citron $7.50 per box. Citron uses a perpetual inventory system.
Mar. 29 Received the payment and delivered the yen to the exchange broker to settle the forward contract.
B. Compute the increase or decrease in income for each fiscal year as a result of the trans actions above.
C. Compute the increase or decrease in income each period that would have occurred if Citron had not entered into the forwardcontract.

Otober Deceber 31 January 2 March 29 $.007235$.007879 $007623 $.007640 Spot rate Forward rate available for the remaining period of the forward contract 007412 007910 007674 No appl.