Vino Veritas Company, a U.S.–based importer of wines and spirits, placed an order with a French supplier for 1,400 cases of wine at a price of 240 euros per case. The total purchase price is 336,000 euros. Relevant exchange rates for the euro are as follows:
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| Call Option Premium | |||
| Forward Rate to | for October 31, 2015 | ||
| Date | Spot Rate | October 31, 2015 | (strike price $1.20) |
| September 15, 2015 | $1.20 | $ 1.26 | $ 0.035 |
| September 30, 2013 | 1.25 | 1.29 | 0.070 |
| October 31, 2015 | 1.30 | 1.30 | 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.
- Assume that the wine arrived on September 15, 2015, and the company made payment on October 31, 2015. There was no attempt to hedge the exposure to foreign exchange risk. Prepare journal entries to account for this import purchase. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
view transaction list view general journal
2 3 4 5
Record purchase of wine from french supplier.
| Date | General Journal | Debit | Credit |
09/15
*Enter debits before credits
- ssume that the wine arrived on September 15, 2015, and the company made payment on October 31, 2015. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 336,000 euros. It properly designated the forward contract as a fair value hedge of a foreign currency payable. Prepare journal entries to account for the import purchase and foreign currency forward contract. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Round your present value interest factor to four decimal places. Round your answers to
view transaction list view general journal
1 2 3 4 5 6 7 8
Record purchase of wine from french supplier.
| Date | General Journal | Debit | Credit |
09/15
*Enter debits before credits
- Vino Veritas ordered the wine on September 15, 2015. The wine arrived and the company paid for it on October 31, 2015. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 336,000 euros. The company properly 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 changes in the forward rate. Prepare journal entries to account for the foreign currency forward contract, firm commitment, and import purchase. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Round your present value interest factor to four decimal places. Round your answers to 2 decimal places.)
| view transaction list | view general journal | |
1 2 3 4 5 6 7 8 9
Record entry placed for purchase of wine.
| Date | General Journal | Debit | Credit |
09/15
*Enter debits before credits
- The wine arrived on September 15, 2015, and the company made payment on October 31, 2015. On September 15, Vino Veritas purchased a 45-day call option for 336,000 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. (If no entry is required for a transaction/event, select
“No journal entry required” in the first account field. Round your present value interest factor to four decimal places.)
view transaction list view general journal
1 2 3 4 5 6 7 8 9 10 11 12
Record purchase of wine from french supplier.
| Date | General Journal | Debit | Credit |
09/15
*Enter debits before credits
- The company ordered the wine on September 15, 2015. It arrived on October 31, 2015, and the company made payment on that date. On September 15, Vino Veritas purchased a 45-day call option for 336,000 euros. It properly 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. Prepare journal entries to account for the foreign currency option, firm commitment, and import purchase. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Round your present value interest factor to four decimal places. Round your answers to the nearest dollar amount.)
view transaction list view general journal
1 2 3 4 5 6 7 8
Record purchase of foreign currency option as an asset.
| Date | General Journal | Debit | Credit |
09/15
Enter debits before credits
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