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7 B - Pacifico Company, a U . S . - based importer of beer and wine, purchased 1 , 7 0 0 cases of

7B- Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,700 cases of Oktoberfest-style beer from a German supplier for 459,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows:
Date Spot Rate Forward Rate to October 15 Call Option Premium for October 15(strike price $1.35)
August 15 $ 1.35 $ 1.41 $ 0.05
September 301.401.440.06
October 151.431.43(spot) N/A
The company closes its books and prepares third-quarter financial statements on September 30.
b.Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 459,000 euros. The company designated the forward contract as a cash flow hedge of a foreign currency payable. Forward points are excluded in assessing hedge effectiveness and amortized to net income using a straight-line method on a monthly basis. Prepare journal entries to account for the import purchase and foreign currency forward contract.
2.Record entry for the forward contract entered into.
3.Record the entry to adjust the value of the euros to the new spot rate.
4.Record the adjustment to the forward contract to fair value.
5.Record a foreign exchange loss on the forward contract to offset the foreign exchange gain on the accounts payable.
6.Record the foreign exchange loss for the third quarter.
7.Record the entry for gain or loss on the forward contract on the payment date when the spot exchange rate is $1.43 per Euro.
8.Record the change in the fair value of the forward contract on October 15 when the spot rate is $1.43 per Euro.
9.Record a foreign exchange loss on the forward contract to offset the foreign exchange gain on the accounts payable.
10.Record the foreign exchange loss for the fourth quarter.
11.Record purchase of foreign currency to make payment to German supplier.
12.Record payment made to German supplier on October 15 when the spot rate is $1.43 per Euro.
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