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 Rate to October 15 Call Option Premium for 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 Rate to October 15 Call Option Premium for 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.
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 1,100 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 Rate to October 15 |
Call Option Premium for 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.
- Record payment made to the German supplier.
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