Part 1:

Zorba Company, a U.S.-based producer of specialty olive oil, sells 500 cases of olive oil to a foreign customer. The total selling price is 50,000 crowns. Relevant exchange rates are as follows:

Date	Spot Rate 1 crown =	Forward Rate (to January 31, Year 2)	Call Option Premium (strike price $1.00)
December 1, Year 1	$1.00	$1.08	$0.04
December 31, Year 1	$1.10	$1.17	$0.12
January 31, Year 2	$1.15	$1.15	$0.15

Zorba Company has an incremental borrowing rate of 12 percent (1 percent per month). The present value factor for one month is 0.9901. The company closes the books and prepares financial statements on December 31.

1. Assume the olive oil was sold on December 1, Year 1, and payment was received on January 31, Year 2. There was no attempt to hedge the foreign exchange risk. Allow all journal entries to account for the sale.
2. Assume the olive oil was sold on December 1, Year 1, and payment was received on January 31, Year 2. On December 1, Year 1, Zorba entered into a two-month forward contract to sell 50,000 crowns. The forward contract is properly designated as a fair value hedge of a foreign currency receivable. Allow all journal entries to account for the sale and the foreign currency forward contract.