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.

e.

Assume that, on August 15, the company forecasted the purchase of

beer on October 15. On August 15, the company acquired a two-month

call option on 276,000 euros. The company designated the option as a

cash value hedge of a forecasted foreign currency transaction. The

time value of the option is excluded from the assessment of hedge

effectiveness, and the change in time value is recognized in net

income over the life of the option. Prepare journal entries to account

for the foreign currency option and import purchase.

E.

1.Record the gain or loss on the foreign currency euro call option with a premium of $0.050 per Euro at a strike price of $1.15 and an exercise date of October 15.

2. Record the gain or loss on the foreign currency euro call option with a premium of $0.060.

3. Record the transfer of gain or loss to the cost of goods sold.

4. Record the entry for changes in the fair value of Euro call option.

5. Record the transfer of gain or loss to the cost of goods sold.

6. Record the purchase of the foreign currency for settling the accounts payable.

7. Record purchase of inventory from German Supplier.

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

9. Record the adjustment of cost of goods sold to the extent of other comprehensive income.