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Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,000 cases of Oktoberfest-style beer...

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Accounting

Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,000 cases of Oktoberfest-style beer from a German supplier for 50,000 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 301.151.190.06
October 151.181.18(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. On August 15, the company entered into a two-month forward contract to purchase 50,000 euros. The company designated the forward contract as a cash flow hedge of a foreign currency payable. Forward points are excluded in assessing hedge effectiveness and amortized to net income using a straight-line method on a monthly basis. Prepare journal entries to account for the import purchase and foreign currency forward contract.
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