b. Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company enteredinto a two-month forward contract to purchase 264,000 euros. The company designated the forward contract as a cash flow hedgeof a foreign currency payable. Forward points are excluded in assessing hedge effectiveness and amortized to net income using astraight-line method on a monthly basis. Prepare journal entries to account for the import purchase and foreign currency forwardcontract.c. Assume that the company ordered the beer on August 15. The beer arrived and the company paid for it on October 15. On August15, the company entered into a two-month forward contract to purchase 264,000 euros. The company designated the forwardcontract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referringto changes in the forward rate. Forward points are not excluded in assessing hedge effectiveness. Prepare journal entries toaccount for the foreign currency forward contract, foreign currency firm commitment, and import purchase. Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,200 cases of Oktoberfest-style beer from a German supplierfor 264,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows:DateAugust 15September 30October 15Spot Rate$1.101.151.18Forward Rateto October 15$1.161.191.18 (spot)Call Option Premiumfor October 15(strike price $1.10)$ 0.050.06N/AThe company closes its books and prepares third-quarter financial statements on September 30.

Golden Rules of Accounting: Account Debit Credit Personal Accounts The Receiver The…

Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,200 cases of Oktoberfest-style beer from a German supplier for 264,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date August 15 September 30 October 15 Spot Rate $1.10 1.15 1.18 Forward Rate to October 15 $1.16 1.19 1.18 (spot) Call Option Premium for October 15 (strike price $1.10) $ 0.05 0.06 N/A The company closes its books and prepares third-quarter financial statements on September 30.

Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,200 cases of Oktoberfest-style beer from a German supplier for 264,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date August 15 September 30 October 15 Spot Rate $1.10 1.15 1.18 Forward Rate to October 15 $1.16 1.19 1.18 (spot) Call Option Premium for October 15 (strike price $1.10) $ 0.05 0.06 N/A The company closes its books and prepares third-quarter financial statements on September 30.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pacifico Company, a U.S. - based importer of beer and wine, purchased 1,300 cases of Oktoberfest-style beer from a German supplier for 299,000 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 $1.15) August 15 $1.15 1.21 $0.05 September 30 1.20 1.24 0.06 October 15 1.23 1.23 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. 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. Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 299,000 euros. The company designated the forward contract as a cash flow hedge of a foreign currency…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,200 cases of Oktoberfest-style beer from a German supplier for 264,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date August 15 September 30 October 15 Spot Rate $1.10 1.15 1.18 Forward Rate to October 15 $1.16 1.19 1.18 (spot) Call Option Premium for October 15 (strike price $1.10) $ 0.05 0.06 N/A The company closes its books and prepares third-quarter financial statements on September 30.
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,400 cases of Oktoberfest-style beer from a German supplier for 350,000 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 $1.25) August 15 $ 1.25 $ 1.31 $ 0.05 September 30 1.30 1.34 0.06 October 15 1.33 1.33 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. Required: 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. Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 350,000 euros. The company designated the forward contract as a cash flow hedge of a foreign…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,400 cases of Oktoberfest-style beer from a German supplier for 350,000 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 $1.25) August 15 $ 1.25 $ 1.31 $ 0.05 September 30 1.30 1.34 0.06 October 15 1.33 1.33 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. Required: 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. Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 350,000 euros. The company designated the forward contract as a cash flow hedge of a foreign…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,100 cases of Oktoberfest-style beer from a German supplier for 242,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rateto October 15 Call Option Premiumfor October 15(strike price $1.10) August 15 $ 1.10 $ 1.16 $ 0.05 September 30 1.15 1.19 0.06 October 15 1.18 1.18 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30 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 242,000 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…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,400 cases of Oktoberfest-style beer from a German supplier for 350,000 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 $1.25) August 15 $ 1.25 $ 1.31 $ 0.05 September 30 1.30 1.34 0.06 October 15 1.33 1.33 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. Required: 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. Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 350,000 euros. The company designated the forward contract as a cash flow hedge of a foreign…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,100 cases of Oktoberfest-style beer from a German supplier for 242,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rateto October 15 Call Option Premiumfor October 15(strike price $1.10) August 15 $ 1.10 $ 1.16 $ 0.05 September 30 1.15 1.19 0.06 October 15 1.18 1.18 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. 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. Record purchase of foreign currency for settling the accounts payable. Record payment made to the German supplier. Record the transfer of inventory to cost of goods sold.
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,100 cases of Oktoberfest-style beer from a German supplier for 242,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rateto October 15 Call Option Premiumfor October 15(strike price $1.10) August 15 $ 1.10 $ 1.16 $ 0.05 September 30 1.15 1.19 0.06 October 15 1.18 1.18 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. 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 242,000 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…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,100 cases of Oktoberfest-style beer from a German supplier for 242,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rateto October 15 Call Option Premiumfor October 15(strike price $1.10) August 15 $ 1.10 $ 1.16 $ 0.05 September 30 1.15 1.19 0.06 October 15 1.18 1.18 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. 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. Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 242,000 euros. The company designated the forward contract as a cash…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,100 cases of Oktoberfest-style beer from a German supplier for 242,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rateto October 15 Call Option Premiumfor October 15(strike price $1.10) August 15 $ 1.10 $ 1.16 $ 0.05 September 30 1.15 1.19 0.06 October 15 1.18 1.18 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30 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 242,000 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…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,100 cases of Oktoberfest-style beer from a German supplier for 242,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rateto October 15 Call Option Premiumfor October 15(strike price $1.10) August 15 $ 1.10 $ 1.16 $ 0.05 September 30 1.15 1.19 0.06 October 15 1.18 1.18 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. 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 entered into a two-month forward contract to purchase 242,000 euros. The company designated the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to…
Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,100 cases of Oktoberfest-style beer from a German supplier for 242,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: Date Spot Rate Forward Rateto October 15 Call Option Premiumfor October 15(strike price $1.10) August 15 $ 1.10 $ 1.16 $ 0.05 September 30 1.15 1.19 0.06 October 15 1.18 1.18 (spot) N/A The company closes its books and prepares third-quarter financial statements on September 30. Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 242,000 euros. The company designated the forward contract as a cash flow hedge of a foreign currency payable. Forward points are excluded in assessing hedge effectiveness and amortized to net income using a…