Marchetti Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 1,000 cases of wine at a price of 200 euros per case. The total purchase price is 200,000 euros. Relevant exchange rates for the euro are as follows:

Call Option Premium

for Jan. 31, 2022

Date Spot Rate (strike price $1.00)

November 1, 2021 $1.00 $0.045

December 31, 2021 $1.09 $0.080

January 31, 2022 $1.07 N/A

Marchetti Company has an incremental borrowing rate of 12 percent (1 percent per month). The present value factor for one month is 0.9901. The firm closes the books and prepares financial statements on December 31. Treat each scenario below independently. Show supporting calculations to get credit.

a.

The wine arrived on November 1, 2021, and the company made payment on January 31, 2022. On November 1, Marchetti purchased a call option to buy 200,000 euros on January 31. It properly designated the option as a fair value hedge of a foreign currency payable. Prepare journal entries to account for the transactions.