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Pacifico Company, a U . S . - based importer of beer and wine, purchased 1 , 0 0 0 cases of Oktoberfest - style
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
Assume that the company ordered the beer on August The beer arrived and the company paid for it on October On August the company entered into a twomonth forward contract to purchase euros. The company designated the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate. Forward points are not excluded in assessing hedge effectiveness. Prepare journal entries to account for the foreign currency forward contract, foreign currency firm commitment, and import purchase.tableNoDate,General Journal,Debit,CreditNo Journal Entry Required,Forward Contract,Foreign Exchange Gain or Loss,Foreign Exchange Gain or Loss,Firm Commitment,Foreign Exchange Gain or Loss,Forward Contract,Firm Commitment,Foreign Exchange Gain or Loss,Foreign Currency euroCash,Forward Contract,Inventory,Foreign Currency euroCost of Goods Sold,Inventory,Firm Commitment,Cost of Goods Sold,
Record entry placed for purchase of Beer.
Record gain or loss on forward contract.
Record gain or loss on firm commitment.
Record the gain or loss on the forward contract.
Record the forward contract fair value hedge of a firm commitment.
Record purchase of foreign currency for settling the accounts payable.
Record the purchase of inventory.
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