Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,900 cases of Oktoberfest-style beer from a German supplier for 570,000 euros. Relevant U.S. dollar

Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,900 cases of Oktoberfest-style beer from a German supplier for 570,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rate to October 15 Call Option Premium for October 15 (strike price $1.50) August 15 $ 1.50 $ 1.56 $ 0.05 September 30 1.55 1.59 0.06 October 15 1.58 1.58 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30.

  1. Assume that the company ordered the beer on August 15. The beer arrived and the company paid for it on October 15. On August 15, the company purchased a two-month call option on 570,000 euros. The company designated the option 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 spot rate. 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, foreign currency firm commitment, and import purchase.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Environmental Auditing For The Non Specialist The CHGL Series On The Environment

Authors: Chris Hoggart

1st Edition

1902423704, 978-1902423708

More Books

Students also viewed these Accounting questions

Question

What Causes Changes in Unemployment over the Long Run

Answered: 1 week ago

Question

Explain the importance of Human Resource Management

Answered: 1 week ago

Question

Discuss the scope of Human Resource Management

Answered: 1 week ago

Question

Discuss the different types of leadership

Answered: 1 week ago

Question

Write a note on Organisation manuals

Answered: 1 week ago