Pacifico Company, a U.S. based importer of beer and wine, purchased 1,200 cases of Oktoberfest style beer from German supplier for 276,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Call Option Premium Forward Rate for Oct 15 Date Spot Rate to Oct 15 (Strike price $1.15) Aug-15 $1.15 $1.21 $0.05 Sep-30 1.20 1.24 0.06 Oct-15 1.23 1.23 (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 276,000 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.

B

6. Record the foreign exchange loss for the third quarter.

Debit Credit

1. 8/15 Inventory 317,400

Accounts Payable 317,400

2. 9/01 No Journal entry required

3. 9/30 Foreign Exchange gain or loss 13,800

Accounts Payable (euro) 13,800

4. 9/30 Forward contract 8,280

Other comprehensive income 8,280

5. 9/30 Other comprehensive income 13,800

Foreign exchange gain or loss 13,800

6. 9/30 Foreign exchange gain or loss

Other comprehensive income

7. 10/15 Foreign exchange gain or loss

Accounts Payable (euro)

8. 10/15 Other comprehensive income

Forward contract

9. 10/15 Other comprehensive income

Foreign exchange gain or loss

10. 10/15 Foreign exchange gain or loss

Other comprehensive income

11. 10/15 Foreign currency (euro)

Cash

12. 10/15 Accounts Payable (euro)

Foreign currency (euro)

13. 10/15 Cost of Goods Sold

Inventory

How to calculate for B. 6. Record the foreign exchange loss for the third quarter.