Pacifico Company, a U.S.-based importer of beer and wine, purchased 2,000 cases of Oktoberfest-style beer from a German supplier for 620,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows:

DateSpot RateForward Rate to October 15Call Option Premium for October 15 (strike price $1.55)August 15$1.55$1.61$0.05September 301.601.640.06October 151.631.63(spot)N/A

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

a. Assume that the beer arrived on August 15, and the company made payment on October 15. There was no attempt to hedge the exposure to foreign exchange risk. Prepare journal entries to account for this import purchase.

1.

Chart of Accounts:

Firm commitment Foreign currency (euro) Foreign currency option Foreign exchange gain or loss Forward contract Inventory Loss on firm comittment Loss on foreign contract Loss on foreign currency option Loss on forward contract No journal entry required Accounts payable (euro) Accounts receivable (euro) Accumulated other comprehensive income Option expense Sales Journal entry worksheet Record the purchase of 2,000 cases of Oktoberfest-style beer from a German supplier. Note: Enter debits before credits. Adjustment to net income Cash Cost of goods sold Discount expense Equipment Gain on firm comittment Gain on foreign contract Gain on foreign currency option Gain on forward contract Interest expense