Business, 19.03.2020 00:31 moomoofower

Vino Veritas Company, a U. S.-based importer of wines and spirits, placed an order with a French supplier for 1,900 cases of wine at a price of 300 euros per case. The total purchase price is 570,000 euros. Relevant exchange rates for the euro are as follows:

Date Spot Rate Forward Rate to for Call Option Premium
October 31, 2013 to (strike price $1.00)
October 31, 2013
September 15,2013 $1.00 $1.06 $0.035
September 30,2013 1.05 1.09 0.070
October 31,2013 1.10 1.10 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.
a. Assume that the wine arrived on September 15, 2013, and the company made payment on October 31, 2013. There was no attempt to hedge the exposure to foreign exchange risk. Prepare journal entries to account for this import purchase.
b. Assume that the wine arrived on September 15, 2013, and the company made payment on October 31, 2013. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 200,000 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.
c. Vino Veritas ordered the wine on September 15, 2013. The wine arrived and the company paid for it on October 31, 2013. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 200,000 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.
d. The wine arrived on September 15, 2013, and the company made payment on October 31, 2013. On September 15, Vino Veritas purchased a 45-day call option for 200,000 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.
e. The company ordered the wine on September 15, 2013. It arrived on October 31, 2013, and the company made payment on that date. On September 15, Vino Veritas purchased a 45-day call option for 200,000 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.

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Vino Veritas Company, a U. S.-based importer of wines and spirits, placed an order with a French sup...

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