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| On December 1, Year 1, Lombardi Company, a calendar-year-end firm, enters into a derivative contract designed to hedge the risk of cash flows associated with the forecast future sale of 300,000 bushels of wheat. The anticipated sales date is February 1, Year 2. The notional amount of the derivative contract is 300,000 bushels, the underlying is the price of the same variety and grade of wheat that Lombardi expects to sell, and the settlement date of the derivative is February 1, Yea. The fair value of the derivative contract on December 31, Year 1 increased by $30,000, an amount equal to the decrease in the fair value of the wheat. The fair value of the derivative contract had increased by an additional $25,000 on February 1, Year 2, also an amount equal to the decrease in the fair value of the wheat. On February 1, the wheat was sold and the derivative contract was settled. The gains attributable to the increase in the fair value of the derivative that should be recognized in Year 1 and Year 2 earnings, respectively, are Year 1 Year 2 A. $30,000 $25,000 B. $0 $55,000 C. $55,000 $0 D. $0 $0 |