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Category > Accounting Posted 05 Aug 2017 My Price 15.00

Vino Veritas Company

Vino Veritas Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 1,000 cases of wine at a price of 200 euros per case. The total purchase price is 200,000

 

euros. Relevant exchange rates for the euro are as follows:

 

 

 

Date,

Spot Rate

PremiumForward Rate to for October 31, 2011

Call Option

Date Spot Rate October 31, 2011 (strike price $1.00)

 

September 15, 2011 September 30, 2011 October 31, 2011

1.00

1.05

1.10

1.06

1.09

1.10

0.035

0.070

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, 2011, and the company made payment on

 

October 31, 2011. There was no attempt to hedge the exposure to foreign exchange risk. Prepare

 

Assume that the wine arrived on September 15, 2011, and the company made payment on

 

October 31, 2011. 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, 2011. The wine arrived and the company paid

 

for it on October 31, 2011. 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, 2011, and the company made payment on October 31, 2011.

 

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, 2011. It arrived on October 31, 2011, 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.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 05 Aug 2017 10:08 PM My Price 15.00

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