Vino Veritas Company, a US-based wine and spirits importer, has ordered 1,700 cases of wine from a French supplier at a price of 270 euros per case. The total purchase price is 459,000 Euros. The relevant exchange rates for the Euro are as follows:

History	Spot rate			Referral Rate Until October 31st			Call Option Premium for October 31 (use price $1.35)
September 15	$	1.35		$	1.41		$	0,050
September 30		1.40			1.44			0,085
31 October		1.45			1.45			0,100

Vino Veritas Company has an increasing borrowing rate of 12 percent (1 percent per month) and prepares its financial statements by closing the books on September 30.

D. The wine arrived on September 15 and the company paid on October 31. On September 15, Vino Veritas purchased a 45-day call option for 459,000 Euros. Appropriately designated the option as a cash flow hedge of a foreign currency payable. Prepare journal entries to account for import purchase and currency option.

1. Record purchase of wine from French supplier 7. Record entry for changes in exchange rate

2. Posting a foreign currency option purchase as an asset 8. Posting entry to set the fair value of the option

3. Record entry for changes in exchange rate 9. Record gain or loss on option

Posting entry to set the fair value of option 4 10. posting option expense

5. record the gain or loss on the option 11. record the placement of the forward contract

6. registration option expense 12. registration payment to foreign supplier

E. Company ordered the wine on September 15. It arrived on October 31st and the company paid on that date. On September 15, Vino Veritas purchased a 45-day call option for 459,000 Euros. Appropriately designated the option as fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by reference to changes in the spot exchange rate. Prepare journal entries to account for currency option, firm commitment and import purchase.

1. Recording the purchase of a currency option as an asset 5. Recording the gain or loss on the firm commitment

2. Posting currency option gains or losses 6. Posting the placement of the forward contract

3. Record the gain or loss related to the firm commitment 7. Record the receipt of the goods and the payment made

4. record gain or loss on currency option 8. record entry to close firm commitment

ACCOUNT TITLES

no journal entry required

accounts payable (euro)

accounts receivable (euro)

AOCI

net income adjustment

advance

discount expense

equipment

performance guarantee

currency (euro)

currency option

foreign exchange earnings

currency loss

futures contract

return on firm commitment

profit from foreign contract

currency option earnings

gain from forward contract

interest expense

inventory

loss of firm commitment

loss from foreign contract

loss on currency option

loss on forward contract

option expense

sales