On December $1,2021,$ King Co$.$ sold inventory to a customer in a foreign country. King agreed to accept $96,000$ local currency units $($LCU$)$ in full payment for this inventory. Payment was to be made on February $1,2022.$ On the date of sale, King entered into a forward exchange contract wherein $96,000$ LCU would be delivered to a currency broker in two months. The two$-$month forward exchange rate on that date was $1$LCU$=$$$0\mathrm{.}30.$ Any contract discount or premium is amortized using the straight$-$line method. The spot rates and forward rates on various dates were as follows:

$\backslash$table$[[$Date$,$Spot Rate,Forward Rate to Feb. $1,2022],[$December $1,2021,$$$0\mathrm{.}32,$$$0\mathrm{.}30],[$December $31,2021,$$$0\mathrm{.}29,$$$0\mathrm{.}28],[$February $1,2022,$$$0\mathrm{.}27,$A $$0\mathrm{.}27]]$

$($A$.)$ Assume this hedge is designated as a cash flow hedge. Prepare the journal entries relating to the transaction and the forward contract.

$($B$.)$ Compute the effect on $2021$ net income.

$($C$.)$ Compute the effect on $2022$ net income.

Short Answer

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