Jackson Corporation (Jackson) transacts business with a number of foreign vendors and

Problem 3 (14 points)Jackson Corporation (Jackson) transacts business with a number of foreign vendors andcustomers. These transactions are denominated in FC, and Jackson uses a number of hedgingstrategies to reduce the exposure to exchange rate risk. One such transaction is as follows:On November 30, 2013, Jackson purchased inventory from a vendor in the amount of 100,000FC with payment due in 60 days (i.e., delivery of the inventory occurred on November 30 th).Also on November 30, Jackson purchased a forward contract to buy FC in 60 days.The company’s year-end is December 31. The relevant discount rate is 6%. Changes in thecurrent value of the forward contract are measured as the present value of the changes in theforward rates over time.Relevant spot and forward rates are shown in the table below.Required:Using the table below, prepare all relevant journal entries suggested by the above-mentionedfacts assuming that the hedge is designated as a fair value hedge.Number of FCSpot rate: 1 FCForward rate (remaining time)Initial forward rateFair Value of Forward Contract:Original Forward ValueCurrent Forward ValueChange gain (loss) in forward valueNov. 30100,000$1.15$1.146-Dec. 31100,000$1.14$1.13 8$1.146Jan. 29100,000$1.12$1.12$1.146$114,600113,800$(800)$114,600112,000$(2,600)Present Value of Change:n = 1; i = 6% / 12 = 0.005n = 0; i = 6% / 12 = 0.005$(796)Change in Value from Prior Period:Current Present ValuePrior Present ValueChange in Present Value(796)0$(796)_$(2,600)(2,600)(796)$(1,804)11