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7 B - Pacifico Company, a U . S . - based importer of beer and wine, purchased 1 , 7 0 0 cases of
B Pacifico Company, a USbased importer of beer and wine, purchased cases of Oktoberfeststyle beer from a German supplier for euros. Relevant US dollar exchange rates for the euro are as follows:
Date Spot Rate Forward Rate to October Call Option Premium for October strike price $
August $ $ $
September
October spot NA
The company closes its books and prepares thirdquarter financial statements on September
bAssume that the beer arrived on August and the company made payment on October On August the company entered into a twomonth forward contract to purchase 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 straightline method on a monthly basis. Prepare journal entries to account for the import purchase and foreign currency forward contract.
Record entry for the forward contract entered into.
Record the entry to adjust the value of the euros to the new spot rate.
Record the adjustment to the forward contract to fair value.
Record a foreign exchange loss on the forward contract to offset the foreign exchange gain on the accounts payable.
Record the foreign exchange loss for the third quarter.
Record the entry for gain or loss on the forward contract on the payment date when the spot exchange rate is $ per Euro.
Record the change in the fair value of the forward contract on October when the spot rate is $ per Euro.
Record a foreign exchange loss on the forward contract to offset the foreign exchange gain on the accounts payable.
Record the foreign exchange loss for the fourth quarter.
Record purchase of foreign currency to make payment to German supplier.
Record payment made to German supplier on October when the spot rate is $ per Euro.
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