consumed by December 31, 2010. Jones Corporation also entered into a forward contract on August 1, 2010 to purchase 100,000 FC in three months at the agreed-on forward rate. The forward contract is properly designated as a fair value hedge of a fair value currency firm commitment. The fair value of the firm commitment is measured through reference to changes in the forward rate. Relevant rates for the FC are as follows: Date Spot Rate Forward Rate, Oct 31, 2010 August 1 $1.300 $1.310 September 31 $1.305 $1.325 October 31 $1.320 The company has an incremental borrowing rate of 12%. It must close its books and prepare third-quarter financial statements on September 30, 2010. Prepare journal entries for the forward contract and firm commitment.
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