4 5 6 7 8 EXERCISE 12-14 Fair Value Hedge Illustration-Forward Contract Consider the following information: 1. On December 1, 2008, a U.S. firm contracts to sell equipment (with an asking price of 1,000,000 pesos) in Mexico. The firm will take delivery and will pay for the equipment on March 1, 2009 2. On December 1, 2008, the company enters into a forward contract to sell 1,000,000 pesos for $0.0948 on March 1, 2009. 3. Spot rates and the forward rates for March 1, 2009, settlement were as follows (dollars per peso): 9 10 11 12 13 14 15 16 17 18 19 20 21 22 22 Forward Rate Spot Rate for 3/1/09 December 1, 2008 $0.0954 $0.0948 Balance sheet date (12/31/08) 0,0949 0.0944 March 1, 2009 0.0917 4. On March 1, the equipment was sold for 1,000,000 pesos. The cost of the equipment was $40,000 Required: Prepare all journal entries needed on December 1, December 31, and March 1 to account for the forward contract, the firm commitment, and the transaction to sell the equipment