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 15date spot rateto oct 15 (Strike price $1.15)15-Aug$1.15 $1.21 $0.05 30-Sep$1.201.24 0.0615-Oct1.231.23 spot NA

The company closes its books and prepares third-quarter financial statements on September 30.

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.

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 $1.23 per Euro.

8. Record the change in the fair value of the forward contract on October 15when the spot rate is $1.23 per Euro.

9. To 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 spot rate is $1.23 per Euro.

13. Record the transfer of inventory to cost of goods sold.

Debit Credit

1. 8/15 Inventory 317,400

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 2,760

Forward contract 2,760

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) 339,480

Cash 339,480

12. 10/15 Accounts Payable (euro)

Foreign currency (euro)

13. 10/15 Cost of Goods Sold 317,400

Inventory 317,400 section B questions 6,7,9,10 and 12 are needed