Astrotuff Company is planning to purchase 200,000 pounds of nylon from Tangsun Company.On November 1,2011,Astrotuff entered into a 90-day forward contract to hedge the planned purchase.The forward contract is to purchase 200,000 pounds of nylon at $1.80 per pound (forward rate at November 1,2011).On November 1,2011,the spot price of nylon is $1.75 per pound,but Astrotuff anticipates significant increases in the price of nylon.The forward contract is to be settled net.
On December 31,2011,Astrotuff's year end,the forward rate to January 30,2012 is $1.78 per pound.The spot and forward rates on January 30,2012 are $1.85 per pound.Astrotuff uses a 6% discount rate relating to their hedging activity.Astrotuff purchases 200,000 pounds of nylon on January 30 when the forward contract expires.
Required:
Prepare the necessary journal entries to account for this cash flow hedge and related purchase of nylon.

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The Answer of Astrotuff Company is planning to purchase 200,000 pounds of nylon from Tangsun Company.On November 1,2011,Astrotuff entered into a 90-day forward contract to hedge the planned purchase.The forward contract is to purchase 200,000 pounds of nylon at $1.80 per pound (forward rate at November 1,2011).On November 1,2011,the spot price of nylon is $1.75 per pound,but Astrotuff anticipates significant increases in the price of nylon.The forward contract is to be settled net.
On December 31,2011,Astrotuff's year end,the forward rate to January 30,2012 is $1.78 per pound.The spot and forward rates on January 30,2012 are $1.85 per pound.Astrotuff uses a 6% discount rate relating to their hedging activity.Astrotuff purchases 200,000 pounds of nylon on January 30 when the forward contract expires.
Required:
Prepare the necessary journal entries to account for this cash flow hedge and related purchase of nylon.

Astrotuff Company Is Planning to Purchase 200,000 Pounds of Nylon