Vino Veritas Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 2,000 cases of wine at a price of 300 euros per case. The total purchase price is 600,000 euros. Relevant exchange rates for the euro are as follows: Date Spot Rate Forward Rate to October 31 Call Option Premium for October 31 (strike price $1.50) September 15 $ 1.50 $ 1.56 $ 0.035 September 30 1.55 1.59 0.070 October 31 1.60 1.60 0.100 Vino Veritas Company has an incremental borrowing rate of 12 percent (1 percent per month) and closes the books and prepares financial statements at September 30. The wine arrived on September 15, and the company made payment on October 31. On September 15, Vino Veritas purchased a 45-day call option for 600,000 euros. It properly designated the option as a cash flow hedge of a foreign currency payable. Prepare journal entries to account for the import purchase and foreign currency option.
Vino Veritas Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 2,000 cases of wine at a price of 300 euros per case. The total purchase price is 600,000 euros. Relevant exchange rates for the euro are as follows: Date Spot Rate Forward Rate to October 31 Call Option Premium for October 31 (strike price $1.50) September 15 $ 1.50 $ 1.56 $ 0.035 September 30 1.55 1.59 0.070 October 31 1.60 1.60 0.100 Vino Veritas Company has an incremental borrowing rate of 12 percent (1 percent per month) and closes the books and prepares financial statements at September 30. The wine arrived on September 15, and the company made payment on October 31. On September 15, Vino Veritas purchased a 45-day call option for 600,000 euros. It properly designated the option as a cash flow hedge of a foreign currency payable. Prepare journal entries to account for the import purchase and foreign currency option.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Vino Veritas Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 2,000 cases of wine at a price of 300 euros per case. The total purchase price is 600,000 euros. Relevant exchange rates for the euro are as follows:
|
Date |
Spot Rate |
Forward Rate |
Call Option Premium |
||||||
|
September 15 |
$ |
1.50 |
|
$ |
1.56 |
|
$ |
0.035 |
|
|
September 30 |
|
1.55 |
|
|
1.59 |
|
|
0.070 |
|
|
October 31 |
|
1.60 |
|
|
1.60 |
|
|
0.100 |
|
|
|
Vino Veritas Company has an incremental borrowing rate of 12 percent (1 percent per month) and closes the books and prepares financial statements at September 30.
- The wine arrived on September 15, and the company made payment on October 31. On September 15, Vino Veritas purchased a 45-day call option for 600,000 euros. It properly designated the option as a
cash flow hedge of a foreign currency payable. Preparejournal entries to account for the import purchase and foreign currency option.
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